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Vertically Integrated Oligopoly and International Trade Policy

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  • Pasi Holm

Abstract

This paper examines the consequences of vertical integration with transfer pricing for the rivalry between duopoly firms in an international environment, using the (noncooperative) Nash equilibrium to determine the output equilibrium. Trade policy incentives resulting from vertical integration in one country, focusing on export subsidy, profit tax rate, and attitudes towards transfer pricing in that country, are analyzed. Without the transfer price penalty schema, a government can use either the subsidy or the tax rate to affect the outcome of a Cournot game. With the schema, introducing the interior solution to the transfer price, the optimal policy involves the effective role of both instruments.

Suggested Citation

  • Pasi Holm, 1997. "Vertically Integrated Oligopoly and International Trade Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 194-207, February.
    • Handle: RePEc:cje:issued:v:30:y:1997:i:1:p:194-207
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    Cited by:

    1. Miller, Andrew D. & Langley, Suchada V. & Chambers, William, 2003. "Current Issues Affecting Trade And Trade Policy: An Annotated Literature Review," Working Papers 14606, International Agricultural Trade Research Consortium.
    2. Laixun Zhao, 2000. "Decentralization and Transfer Pricing Under Oligopoly," Southern Economic Journal, John Wiley & Sons, vol. 67(2), pages 414-426, October.
    3. Sonali Deraniyagala & Ben Fine, 2000. "New Trade Theory Versus Old Trade Policy: A Continuing Enigma," Working Papers 102, Department of Economics, SOAS University of London, UK.

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