Trade policies, time consistency, quality reversals and exit in vertically integrated industries
AbstractThe impact of strategic trade policies, such as import tariffs and domestic output subsidies, is studied in a vertically differentiated duopoly. Firms first choose quality and then compete in quantities or prices in the home market. If the government is unable to commit to a policy the domestic firm then chooses its quality strategically in order to alter the market structure in its favor. Time consistent subsidies are always positive and result in a domestic monopoly as the foreign firm exits the market. Time consistent tariffs are also positive and ensure that the domestic firm always produces the high quality good. Commitment to a subsidy results in greater domestic welfare than under non-commital. Except for the case when, under price competition and the domestic firm producing the low quality good under free trade, non-commital under tariffs by the domestic government is welfare improving.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/7223.
Date of creation:
Date of revision:
Contact details of provider:
Web page: http://www.uc3m.es
Vertical differentiation; Time consistent policies; Commitment; Import tariffs; Output subsidies; Quality reversals; Exit;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Leahy, Dermot & Neary, J Peter, 1994. "Learning by Doing, Precommitment and Infant-Industry Protection," CEPR Discussion Papers 980, C.E.P.R. Discussion Papers.
- Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Leahy, Dermot & Neary, J Peter, 1996.
"International R&D Rivalry and Industrial Strategy without Government Commitment,"
Review of International Economics,
Wiley Blackwell, vol. 4(3), pages 322-38, October.
- Leahy, Dermot & Neary, J Peter, 1995. "International R&D Rivalry and Industrial Strategy without Government Commitment," CEPR Discussion Papers 1199, C.E.P.R. Discussion Papers.
- Herguera, Iñigo & Kujal, Praveen & Petrakis, E., 2000.
"Quantity Restrictions and Endogenous Quality Choice,"
Open Access publications from Universidad Carlos III de Madrid
info:hdl:10016/5333, Universidad Carlos III de Madrid.
- Herguera, Inigo & Kujal, Praveen & Petrakis, Emmanuel, 2000. "Quantity restrictions and endogenous quality choice," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1259-1277, December.
- Dixit, Avinash, 1988. "Anti-dumping and countervailing duties under oligopoly," European Economic Review, Elsevier, vol. 32(1), pages 55-68, January.
- Gruenspecht, Howard K., 1988. "Export subsidies for differentiated products," Journal of International Economics, Elsevier, vol. 24(3-4), pages 331-344, May.
- Leahy, Dermot & Neary, J Peter, 1995.
"Public Policy Towards R&D in Oligopolistic Industries,"
CEPR Discussion Papers
1243, C.E.P.R. Discussion Papers.
- Leahy, Dermot & Neary, J Peter, 1997. "Public Policy towards R&D in Oligopolistic Industries," American Economic Review, American Economic Association, vol. 87(4), pages 642-62, September.
- D Leahy & J.P. Neary, 1995. "Public Policy Towards R&D in Oligopolistic Industries," CEP Discussion Papers dp0270, Centre for Economic Performance, LSE.
- Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-83, September.
- Carmichael, Calum M., 1987. "The control of export credit subsidies and its welfare consequences," Journal of International Economics, Elsevier, vol. 23(1-2), pages 1-19, August.
- D Leahy & J.P. Neary, 1995. "Learning by Doing," CEP Discussion Papers dp0251, Centre for Economic Performance, LSE.
- Hwang, Hae-Shin & Schulman, Craig T., 1993. "Strategic non-intervention and the choice of trade policy for international oligopoly," Journal of International Economics, Elsevier, vol. 34(1-2), pages 73-93, February.
- Goldberg, Pinelopi Koujianou, 1995. "Strategic Export Promotion in the Absence of Government Precommitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 407-26, May.
- David Greenaway & Robert Hine & Chris Milner, 1994. "Country-specific factors and the pattern of horizontal and vertical intra-industry trade in the UK," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(1), pages 77-100, March.
- Anis, Aslam H. & Ross, Thomas W., 1992. "Imperfect competition and pareto-improving strategic trade policy," Journal of International Economics, Elsevier, vol. 33(3-4), pages 363-371, November.
- Kala Krishna, 1988. "Tariffs vs. Quotas with Endogenous Quality," NBER Working Papers 1535, National Bureau of Economic Research, Inc.
- Darmot Leahy & J. Peter Neary, 1997. "Public Policy Towards R & D in Oligopolistic Industry," Politická ekonomie, University of Economics, Prague, vol. 1997(5), pages 683-698.
- Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-37, December.
- Jose Luis Moraga & Jean-Marie Viaene, 1999. "Endogenous Quality Effects of Trade Policy," Tinbergen Institute Discussion Papers 99-094/2, Tinbergen Institute.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Contact person).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.