IDEAS home Printed from
   My bibliography  Save this article

Cost asymmetry, oligopolistic competition and optimal trade and industrial policies


  • Winston Chang
  • Hajime Sugeta


Optimal trade and industrial policies are examined in an export-rivalry and a home-market model with general cost heterogeneity among firms. The roles of the demand and cost structures in policy determination are systematically analysed. It is shown that the equal-markup property holds in both models under the firm-specific industrial policy. A more efficient firm has a higher subsidy or a lower tax rate than an inefficient one. In the home market model under free trade, the firm-specific industrial policy always calls for subsidies to all home firms. Under the firm-specific trade policy, it is shown that the difference between any two tariff rates exactly equals 100% of the difference between the foreign firms' marginal costs, the home industry is always granted some positive level of protection, and a production-tax-cum-import-subsidy policy is never optimal.

Suggested Citation

  • Winston Chang & Hajime Sugeta, 2005. "Cost asymmetry, oligopolistic competition and optimal trade and industrial policies," International Economic Journal, Taylor & Francis Journals, vol. 19(1), pages 95-114.
  • Handle: RePEc:taf:intecj:v:19:y:2005:i:1:p:95-114 DOI: 10.1080/1351161042000320416

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Brander, James A. & Spencer, Barbara J., 1984. "Trade warfare: Tariffs and cartels," Journal of International Economics, Elsevier, vol. 16(3-4), pages 227-242, May.
    2. Van Long, N. & Soubeyran, A., 1996. "Industry Structure and Optimal Discriminatory Commercial Policies," G.R.E.Q.A.M. 96a38, Universite Aix-Marseille III.
    3. Collie, David, 1991. "Export subsidies and countervailing tariffs," Journal of International Economics, Elsevier, vol. 31(3-4), pages 309-324, November.
    4. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
    5. Collie, David, 1993. "Strategic trade policy under asymmetric oligopoly," European Journal of Political Economy, Elsevier, vol. 9(2), pages 275-280, May.
    6. Ngo, Van Long & Soubeyran, Antoine, 1997. "Cost heterogeneity, industry concentration and strategic trade policies," Journal of International Economics, Elsevier, vol. 43(1-2), pages 207-220, August.
    7. Sajal Lahiri & Yoshiyasu Ono, 1997. "Asymmetric oligopoly, international trade, and welfare: a synthesis," Journal of Economics, Springer, vol. 65(3), pages 291-310, October.
    8. Bandyopadhyay, Subhayu, 1997. "Demand elasticities, asymmetry and strategic trade policy," Journal of International Economics, Elsevier, vol. 42(1-2), pages 167-177, February.
    9. Collie, David & De Meza, David, 1986. "Inadequacies of the strategic rationale of export subsidies," Economics Letters, Elsevier, vol. 22(4), pages 369-373.
    10. Krishna, Kala & Thursby, Marie, 1991. "Optimal policies with strategic distortions," Journal of International Economics, Elsevier, vol. 31(3-4), pages 291-308, November.
    11. Collie, David & de Meza, David, 2003. "Comparative advantage and the pursuit of strategic trade policy," Economics Letters, Elsevier, vol. 81(2), pages 279-283, November.
    12. Ngo Van Long & Antoine Soubeyran, 1999. "Industry concentration and optimal discriminatory commercial policies," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(3), pages 241-256.
    13. Mai, Chao-cheng & Hwang, Hong, 1988. "Optimal export subsidies and marginal cost differentials," Economics Letters, Elsevier, vol. 27(3), pages 279-282.
    14. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    15. Leahy, Dermot & Montagna, Catia, 2001. "Strategic Trade Policy with Heterogeneous Costs," Bulletin of Economic Research, Wiley Blackwell, vol. 53(3), pages 177-182, July.
    Full references (including those not matched with items on IDEAS)


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:19:y:2005:i:1:p:95-114. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.