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A Note on Optimal Industrial Policy Towards Bertrand Homogeneous Duopoly

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  • Qi Duan
  • Jie Ma

Abstract

Recent studies in strategic trade and industrial policy analysis suggest that an investment subsidy, in the form of an R&D subsidy, a capacity subsidy or an advertising subsidy, would be a robust industrial policy recommendation towards an international differentiated oligopoly. However, in this paper, we show that this result does not carry over to the case of a Bertrand homogeneous duopoly. This result together with the fact that the optimal industrial policy is to set an investment subsidy when in product market competition firms play a Cournot output game, imply immediately that there hardly exists a robust industrial policy recommendation towards homogeneous goods industries.

Suggested Citation

  • Qi Duan & Jie Ma, 2017. "A Note on Optimal Industrial Policy Towards Bertrand Homogeneous Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 56(4), pages 292-303, December.
    • Handle: RePEc:bla:ausecp:v:56:y:2017:i:4:p:292-303
    DOI: 10.1111/1467-8454.12101
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    References listed on IDEAS

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    1. Neary, J Peter & Leahy, Dermot, 2000. "Strategic Trade and Industrial Policy towards Dynamic Oligopolies," Economic Journal, Royal Economic Society, vol. 110(463), pages 484-508, April.
    2. Elizabeth Schroeder & Victor Tremblay, 2015. "A Reappraisal of Strategic Trade Policy," Journal of Industry, Competition and Trade, Springer, vol. 15(4), pages 435-442, December.
    3. Dermot Leahy & J. Peter Neary, 2000. "Robust Rules for Industrial Policy in open Economies," Working Papers 200021, School of Economics, University College Dublin.
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    5. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 383-406.
    6. Jie Ma & Alistair M. Ulph, 2012. "Advertising Subsidy and International Oligopolistic Competition," Review of International Economics, Wiley Blackwell, vol. 20(4), pages 793-806, September.
    7. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    8. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-258, March.
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    Cited by:

    1. Partha Pratim Dube, 2018. "Bertrand Game Under Cost Function," Australian Economic Papers, Wiley Blackwell, vol. 57(4), pages 489-496, December.

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