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Multi-stage strategic trade policy in a differentiated duopoly

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  • Livanis, Grigorios
  • Geringer, J. Michael

Abstract

We consider a three-stage, non-cooperative game between two countries and two firms (duopoly) under a “reciprocal market model” to identify the optimal trade policy in the presence of tariffs and subsidies, but also allowing each country to commit to free trade. Even in the presence of demand uncertainty and horizontal product differentiation, it is established that there always exists a subgame perfect equilibrium in which one of the countries chooses protection while the other country chooses free trade.

Suggested Citation

  • Livanis, Grigorios & Geringer, J. Michael, 2021. "Multi-stage strategic trade policy in a differentiated duopoly," Economics Letters, Elsevier, vol. 206(C).
    • Handle: RePEc:eee:ecolet:v:206:y:2021:i:c:s0165176521002494
    DOI: 10.1016/j.econlet.2021.109972
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    References listed on IDEAS

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    1. Tsai, Shoou-Rong & Tsai, Pan-Long & Weng, Yungho, 2018. "Endogenous strategic trade policy: The case of the third market model," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 676-682.
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    3. Žigić, Krešimir, 2011. "Does a ‘non-committed’ government always generate lower social welfare than its ‘committed’ counterpart? Strategic trade policy when consumer surplus matters," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 533-556.
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    5. Kangsik Choi & Seonyoung Lim, 2019. "A reappraisal of strategic trade policies with the endogenous mode of competition under vertical structures," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(1), pages 11-29, January.
    6. Orlando I. Balboa & Andrew F. Daughety & Jennifer F. Reinganum, 2004. "Market Structure and the Demand for Free Trade," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 125-150, March.
    7. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
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    Cited by:

    1. Luciano Fanti & Domenico Buccella, 2023. "Vertical industry and strategic trade policy," SN Business & Economics, Springer, vol. 3(2), pages 1-16, February.

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    More about this item

    Keywords

    Strategic trade; Differentiated duopoly; Demand uncertainty;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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