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A Reappraisal of Strategic Trade Policy

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  • Elizabeth Schroeder
  • Victor Tremblay

Abstract

We investigate the welfare effect of an export subsidy/tax in the “third market” trade model. The conventional wisdom is that an export subsidy increases home welfare in a Cournot setting (Brander and Spencer 1985) and an export tax increases home welfare in a Bertrand setting (Eaton and Grossman 1985). By allowing firms to compete in a Cournot-Bertrand duopoly model where one firm competes in output and the other competes in price, we are able to show that the conventional wisdom is incomplete. Optimal trade policy does not depend simply on whether firms compete in a Cournot or Bertrand type game. It only depends on whether the foreign firm competes in output or price. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Elizabeth Schroeder & Victor Tremblay, 2015. "A Reappraisal of Strategic Trade Policy," Journal of Industry, Competition and Trade, Springer, vol. 15(4), pages 435-442, December.
    • Handle: RePEc:kap:jincot:v:15:y:2015:i:4:p:435-442
    DOI: 10.1007/s10842-015-0195-7
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    References listed on IDEAS

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    6. Tremblay, Carol Horton & Tremblay, Victor J., 2011. "The Cournot-Bertrand model and the degree of product differentiation," Economics Letters, Elsevier, vol. 111(3), pages 233-235, June.
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    9. Victor J. Tremblay & Carol Horton Tremblay, 2012. "New Perspectives on Industrial Organization," Springer Texts in Business and Economics, Springer, edition 127, number 978-1-4614-3241-8, August.
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    Cited by:

    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.
    2. Qi Duan & Jie Ma, 2017. "A Note on Optimal Industrial Policy Towards Bertrand Homogeneous Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 56(4), pages 292-303, December.
    3. John Gilbert & Onur A. Koska & Reza Oladi, 2020. "International Trade, Upstream Market Power, and Endogenous Mode of Downstream Competition," Working Papers in Economics 20/22, University of Canterbury, Department of Economics and Finance.
    4. Choi, Kangsik & Lee, Ki-Dong & Lim, Seonyoung, 2016. "Strategic Trade Policies In International Rivalry When Competition Mode Is Endogenous," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 57(2), pages 223-241, December.
    5. John Gilbert & Onur A. Koska & Reza Oladi, 2023. "Foreign market entry, upstream market power, and endogenous mode of downstream competition," Review of International Economics, Wiley Blackwell, vol. 31(1), pages 341-362, February.
    6. John Gilbert & Onur A. Koska & Reza Oladi, 2022. "International trade, differentiated goods, and strategic asymmetry," Southern Economic Journal, John Wiley & Sons, vol. 88(3), pages 1178-1198, January.
    7. Tsuyoshi Toshimitsu, 2017. "Strategic Trade Policy and Network Compatibility," Journal of Industry, Competition and Trade, Springer, vol. 17(2), pages 237-249, June.

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    More about this item

    Keywords

    Strategic trade policy; Cournot-Bertrand model; C72; D43; F11; F13;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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