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Market Structure and the Demand for Free Trade

  • Orlando I. Balboa
  • Andrew F. Daughety
  • Jennifer F. Reinganum

We examine a heterogenous goods duopoly model, wherein governments simultaneously and noncooperatively choose whether or not to provide subsidies for their firms and then firms noncooperatively choose output levels, either sequentially or simultaneously. We find that government trade policy and market structure are interdependent. First, the trade regime alters traditional firm preferences over sequential versus simultaneous play. Second, different market structures influence governments' preferences about free trade versus subsidies. Further, if one of the firms is a potential leader, allowing for endogenous market structure generates equilibrium outcomes that sometimes reinforce, and sometimes counter, traditional results in the strategic trade literature. Copyright 2004 Blackwell Publishing, 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK..

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Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 13 (2004)
Issue (Month): 1 (03)
Pages: 125-150

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Handle: RePEc:bla:jemstr:v:13:y:2004:i:1:p:125-150
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  1. 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.
  2. 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.
  3. Kala Krishna, 1985. "Trade Restrictions as Facilitating Practices," NBER Working Papers 1546, National Bureau of Economic Research, Inc.
  4. Gruenspecht, Howard K., 1988. "Export subsidies for differentiated products," Journal of International Economics, Elsevier, vol. 24(3-4), pages 331-344, May.
  5. Sadanand, Asha & Sadanand, Venkatraman, 1996. "Firm Scale and the Endogenous Timing of Entry: a Choice between Commitment and Flexibility," Journal of Economic Theory, Elsevier, vol. 70(2), pages 516-530, August.
  6. Richard Harris, 1984. "Why Voluntary Export Restraints are 'Voluntary'," Working Papers 559, Queen's University, Department of Economics.
  7. Hamilton, J.H. & Slutsky, S.M., 1988. "Endogenous Timing In Duopoly Games: Stackelberg Or Cournot Equilibria," Papers 88-4, Florida - College of Business Administration.
  8. Mailath George J., 1993. "Endogenous Sequencing of Firm Decisions," Journal of Economic Theory, Elsevier, vol. 59(1), pages 169-182, February.
  9. Andrew F. Daughety, 1985. "Reconsidering Cournot: The Cournot Equilibrium is Consistent," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 368-379, Autumn.
  10. Steve Dowrick, 1986. "von Stackelberg and Cournot Duopoly: Choosing Roles," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 251-260, Summer.
  11. Robson, Arthur J, 1990. "Duopoly with Endogenous Strategic Timing: Stackelberg Regained," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 263-74, May.
  12. Miller, Nolan H & Pazgal, Amit I, 2001. "The Equivalence of Price and Quantity Competition with Delegation," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 284-301, Summer.
  13. Esther Gal-Or, 1987. "First Mover Disadvantages with Private Information," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 279-292.
  14. 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.
  15. Daughety, Andrew F & Reinganum, Jennifer F, 1994. "Asymmetric Information Acquisition and Behavior in Role Choice Models: An Endogenously Generated Signaling Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 795-819, November.
  16. Paul Klemperer & Margaret Meyer, 1986. "Price Competition vs. Quantity Competition: The Role of Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 618-638, Winter.
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