Cascading contingent protection and vertical market structure
Cascading contingent protection may occur when protection of an upstream industry transfers injury to the downstream industry and increases the likelihood that this industry asks and receives protection. This paper shows that the political economy of cascading contingent protection can be represented by a sequential bidding game in expected payoffs where the upstream industry acts as a Stackelberg leader. A simple model of competition in, and vertical linkage between, an upstream and downstream industry is developed to examine in which type of industries cascading contingent protection is most likely to occur. Analysis of welfare effects shows that the circumstances which make cascading protection more likely to occur, also make it more likely that it has serious negative welfare consequences.
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