The paper studies the effects of a change in the level of voluntary export restraints (VERs) on the behavior of the domestic firm and on the welfare of the importing country. The author constructs a simple two-country Cournot duopoly model in which each firm produces a homogeneous good at constant marginal cost. It is shown that the results obtained by predecessors based on linear demand, constant-elasticity demand, strategic substitutes and so forth all emerge as special cases.

This paper has two aims. First, to examine alternative ways of modeling VERS in imperfectly competitive markets. This is important, since the. effects of VERS are sensitive to the models used. Second, to argue that the effects of VERS also depend on whether goods are complements or Substitutes. This point is illustrated by extending the model of Krishna (1983) to allow complementary goods to be produced by domestic and foreign firms. If goods are substitutes, VERs et at free trade levels raise all profits, while if they are complements, the VERS have no effect. Thus tariffs and quotas are fundamentally non-equivalent under Bertrand duopoly when substitute goods are produced, but are equivalent when complementary goods are being produced. This is contrasted to the case of Stackelberg leadership. Th. importance of specifying the effects of any restriction on the payoff functions of agents and using this to analyze its affects on equilibrium of the game is emphasized.