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Endogenous strategic trade policy: The case of the third market model

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  • Tsai, Shoou-Rong
  • Tsai, Pan-Long
  • Weng, Yungho

Abstract

Using simple linear demand functions, we have shown that in the thircd market strategic trade policy model there cannot be Cournot-Bertrand or Bertrand-Cournot competition in equilibrium if the two firms choose strategic variables endogenously. More importantly, knowing that the firms will react to its policy in choosing their strategic variables, the government can indeed provide export subsidies to the home firm to maximize the home social welfare if some moderate, reasonable constraints are satisfied.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:reveco:v:58:y:2018:i:c:p:676-682
    DOI: 10.1016/j.iref.2018.07.007
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    Cited by:

    1. Luciano Fanti & Domenico Buccella, 2023. "Vertical industry and strategic trade policy," SN Business & Economics, Springer, vol. 3(2), pages 1-16, February.
    2. Livanis, Grigorios & Geringer, J. Michael, 2021. "Multi-stage strategic trade policy in a differentiated duopoly," Economics Letters, Elsevier, vol. 206(C).
    3. Mantian Xue, 2022. "“Spare Wheel” R&D in vertically related markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 1105-1112, June.

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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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