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Strategic trade policy with interlocking cross-ownership

Author

Listed:
  • Luciano Fanti

    (University of Pisa)

  • Domenico Buccella

    (Kozminski University)

Abstract

By analysing interlocking cross-ownership, this work reconsiders the inefficiency of activist governments that set subsidies for their exporters (Brander and Spencer, J Int Econ 18:83–100). Making use of a third-market Cournot duopoly model, we show that the implementation of strategic trade policy in the form of a tax (subsidy) when goods are differentiated (complements) is Pareto-superior to free trade within precise ranges of firms’ cross-ownership, richly depending on the degree of product competition. These results challenge the conventional ones in which public intervention (1) is always the provision of a subsidy and (2) always leads to a Pareto-inferior (resp. Pareto-superior) equilibrium when products are substitutes (resp. complements).

Suggested Citation

  • Luciano Fanti & Domenico Buccella, 2021. "Strategic trade policy with interlocking cross-ownership," Journal of Economics, Springer, vol. 134(2), pages 147-174, October.
    • Handle: RePEc:kap:jeczfn:v:134:y:2021:i:2:d:10.1007_s00712-021-00745-9
    DOI: 10.1007/s00712-021-00745-9
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    Cited by:

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    2. Junlong Chen & Xinran Xie & Chaoqun Sun & Li Lin & Jiali Liu, 2022. "Optimal trade policy and welfare in a differentiated duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 3019-3043, October.
    3. Chuyuan Zhang & Sang‐Ho Lee, 2023. "Foreign passive ownership and tariff‐induced free technology transfer under vertical integration," Manchester School, University of Manchester, vol. 91(2), pages 89-117, March.
    4. Shih-Shen Chen & Chien-Shu Tsai & Chen Chen, 2022. "Quid Pro Quo CSR and Trade Liberalization in a Bilateral Monopoly," Games, MDPI, vol. 13(3), pages 1-11, May.
    5. Ji Sun & Leonard F. S. Wang, 2023. "Vertical cross‐ownership, input price discrimination, and social welfare," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(2), pages 290-308, June.
    6. Cho, Sumi & Kim, Doori & Lee, Sang-Ho, 2022. "Free licensing strategy and ex-post privatization policy with passive ownership," Economic Modelling, Elsevier, vol. 106(C).

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    More about this item

    Keywords

    Export subsidy; Prisoner’s dilemma; Interlocking cross-ownership; Cournot duopoly;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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