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Endogenous Market Structures and Strategic Trade Policy

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  • Federico Etro

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Abstract

We characterize the optimal export promoting policies for international markets whose structure is endogenous. Contrary to the ambiguous results of strategic trade policy for markets with a fixed number of firms, it is always optimal to subsidize exports as long as entry is endogenous, under both competition in quantities and in prices. With homogenous goods the optimal export subsidy is a fraction 1/€ of the price, where € is the elasticity of demand, the exact opposite of the optimal export tax in the neoclassical trade theory. A similar argument can be applied to show the general optimality of R&D subsidies and of competitive devaluations to promote exports in foreign markets where entry is endogenous.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper149.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 149.

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Length: 38 pages
Date of creation: Dec 2008
Date of revision: Dec 2008
Handle: RePEc:mib:wpaper:149

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Related research

Keywords: Trade policy; Export Subsidies; Competitive Devaluations; Endogenous Market Structures;

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Cited by:
  1. Etro Federico, 2010. "Endogenous Market Structures and Contract Theory. Delegation, principal-agent contracts, screening, franchising and tying," Working Papers 2010_25, Department of Economics, University of Venice "Ca' Foscari".
  2. Federico Etro, 2010. "Endogenous market structures and antitrust policy," International Review of Economics, Springer, vol. 57(1), pages 9-45, March.

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