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Optimal Trade Policy under Homogeneous Bertrand Competition

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  • Hong Hwang
  • Chao‐Cheng Mai
  • Ya‐Po Yang

Abstract

In a seminal paper, Eaton and Grossman (1986) conclude that an export tax is optimal if firms produce heterogeneous products and engage in Bertrand price competition. In particular, they made a comment that could be interpreted to mean that even in the case of a homogeneous product, the optimal policy is still an export tax. This paper has re‐examined the case and found that the optimal export policy can be an export subsidy, free trade, or an export tax, depending on the marginal cost differential between the domestic and the foreign firms. Moreover, if government intervention entails a cost, free trade becomes the only optimal policy.

Suggested Citation

  • Hong Hwang & Chao‐Cheng Mai & Ya‐Po Yang, 2008. "Optimal Trade Policy under Homogeneous Bertrand Competition," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 1005-1009, November.
    • Handle: RePEc:bla:reviec:v:16:y:2008:i:5:p:1005-1009
    DOI: 10.1111/j.1467-9396.2008.00761.x
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. 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.
    3. 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.
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    Cited by:

    1. Wen‐Jung Liang & Chao‐Cheng Mai, 2010. "Optimal Trade Policy with Horizontal Differentiation and Asymmetric Costs," Review of Development Economics, Wiley Blackwell, vol. 14(2), pages 302-310, May.
    2. CLAUDINE KEARNEY & KILLIAN J. McCARTHY & EELKO K. R. E. HUIZINGH, 2019. "One Size (Does Not) Fit All: Evidence Of Similarities And Differences Between Product Innovation Management In High- And Low-Tech Manufacturing Firms," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 23(01), pages 1-30, January.
    3. Zrinka Lukač, 2023. "Optimal tax policy for single homogeneous commodity on n markets with export costs as a Stackelberg game," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 31(3), pages 873-890, September.

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