Alternative Oligopolistic Structures In International Commodity Markets: Price Or Quantity Competition?

It has been shown in new trade theory that trade taxes/subsidies may be optimal in the case of oligopolistic markets. This result has relevance for international commodity markets because there is growing evidence of imperfect competition in commodity trade. However, it has also been demonstrated that the optimal strategic trade policy depends on whether the market is distinguished by Bertrand (price) or Cournot (quantity) competition. We argue that commodity markets may be characterised by either form of imperfect competition and also by product differentiation. As an illustration, we present a set of models of the Japanese market for beef imports in which account is taken of various forms of strategic interaction between Australian and United States exports. The model which best fits the data is a Stackelberg model with price leadership by Australia. This result casts doubt on the approach taken in past empirical work on commodity markets in which quantity competition has been routinely imposed and it also suggests that if trade policy intervention is warranted, then export taxes may be preferred to export subsidies.