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High-Tech Trade Policy

In: Issues in US-EC Trade Relations

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  • Kala Krishna

Abstract

This paper analyzes the role of network externalities and expectations about them in the formulation of trade policy. Their effects are studied in duopoly situations when products are compatible and when they are incompatible and when multimarket effects are possible. Network externalities and expectations regarding the size of the network affect optimal trade policy in three ways. First, the presence of expectations effects creates a role for 'policy if. there are differences between the way the externalities operate and expectations about how they operate. Second, when goods are compatible, the existence of network externalities can cake goods complementary which reverses the direction of optimal policy. .Third, since multimarket effects occur naturally with network externalities and compatible products, purely domestic policies, which are legal under GATT, can have international profit shifting effects which may be in the national 'interest.
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Suggested Citation

  • Kala Krishna, 1988. "High-Tech Trade Policy," NBER Chapters,in: Issues in US-EC Trade Relations, pages 285-314 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:5964
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    References listed on IDEAS

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    1. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
    2. Richard E. Baldwin & Paul Krugman, 1986. "Market Access and International Competition: A Simulation Study of 16K Random Access Memories," NBER Working Papers 1936, National Bureau of Economic Research, Inc.
    3. 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.
    4. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-366, May.
    5. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    6. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
    7. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
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    Cited by:

    1. Kubota, Keiko, 2000. "Trade negotiations in the presence of network externalities," Policy Research Working Paper Series 2317, The World Bank.
    2. Jensen, Richard & Thursby, Marie, 1996. "Patent Races, Product Standards, and International Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 21-49, February.
    3. Bletschacher, Georg, 1991. "Ansätze strategischer Handels- und Industriepolitik: Ein Überblick," Kiel Working Papers 487, Kiel Institute for the World Economy (IfW).
    4. Gröhn, Andreas, 1997. "Netzwerkeffekte: eine neue Begründung für die strategische Handelspolitik?," Kiel Working Papers 826, Kiel Institute for the World Economy (IfW).
    5. Vőneki, Éva, 2004. "Zur Bewertung des ungarischen SAPARD-Programms unter besonderer Berücksichtigung der Investitionen im Milchsektor," IAMO Discussion Papers 59, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    6. Jeanneret, Marie-Helene & Verdier, Thierry, 1996. "Standardization and protection in a vertical differentiation model," European Journal of Political Economy, Elsevier, vol. 12(2), pages 253-271, September.
    7. Klodt, Henning, 1992. "Theorie der strategischen Handelspolitik und neue Wachstumstheorie als Grundlage für eine Industrie- und Technologiepolitik?," Kiel Working Papers 533, Kiel Institute for the World Economy (IfW).

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