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Strategic Interaction of International Markets: An Application to the Dairy Market

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  • Vargas Andrés José

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    Abstract

    This paper studies the relation between the government’s objectives to sustain income in the dairy sector and the possibility to capture rent in the world market. To do this, two different governmental policies were considered: a direct export subsidy and a price discrimination scheme. These policies were analyzed under strategic and non-strategic scenarios. The results indicate that when there is non-strategic interaction and there exists a low opportunity cost of public funds, the two policies have the same effect on total welfare and lead to the same wealth transfer to producers. When there is a strategic interaction among producers, the price discrimination scheme leads to higher consumer welfare but lower producer benefit, being the net result on total welfare determined by the relative weights of the agents in the welfare function. From the producers’ point of view, the export subsidy is preferred to the price discrimination scheme when there is imperfect competition in the world market.

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    File URL: http://economia.uniandes.edu.co/revistadys/48/8cbeStrategic.pdf
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    Article provided by UNIVERSIDAD DE LOS ANDES-CEDE in its journal REVISTA DESARROLLO Y SOCIEDAD.

    Volume (Year): (2001)
    Issue (Month): ()
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    Handle: RePEc:col:000090:003526

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    1. Cooper, Russell & Riezman, Raymond, 1989. "Uncertainty and the Choice of Trade Policy in Oligopolistic Industrie s," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 129-40, January.
    2. Bouamra-Mechemache, Zohra & Chavas, Jean-Paul & Cox, Thomas L. & Requillart, Vincent, 2002. "Price Discrimination and EU Dairy Policy: An Economic Evaluation of Policy Options," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24899, European Association of Agricultural Economists.
    3. Zohra Bouamra Mechemache & Vincent Réquillart, 1999. "Policy Reform in the European Union Dairy Sector: Effects on Markets and Welfare," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 47(5), pages 105-114, December.
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