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Strategic Trade and Industrial Policy Towards Dynamic Oligopolies

  • Leahy, Dermot
  • Neary, J Peter

We characterize optimal trade and industrial policy in dynamic oligopolistic markets. If governments can commit to future policies, optimal first-period intervention should diverge from the profit-shifting benchmark to an extent which exactly offsets the strategic behaviour implied by Fudenberg and Tirole's 'fat cats and top dogs' taxonomy of business strategies. Without government commitment, there is an additional basis for intervention, whose sign depends on the strategic substitutability between future policy and current actions. We consider a variety of applications (to R&D spillovers, consumer switching costs, etc.) and extensions to second-best, revenue-constrained and entry-promotion policies.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1968.

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Date of creation: Sep 1998
Date of revision:
Handle: RePEc:cpr:ceprdp:1968
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  1. Leahy, Dermot & Neary, J Peter, 1999. "R&D Spillovers and the Case for Industrial Policy in an Open Economy," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 40-59, January.
  2. d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers," CORE Discussion Papers RP 823, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier.
  4. Vives, Xavier, 1989. "Technological competition, uncertainty, and oligopoly," Journal of Economic Theory, Elsevier, vol. 48(2), pages 386-415, August.
  5. To, Theodore, 1994. "Export subsidies and oligopoly with switching costs," Journal of International Economics, Elsevier, vol. 37(1-2), pages 97-110, August.
  6. Brander, James A. & Spencer, Barbara J., 1987. "Foreign direct investment with unemployment and endogenous taxes and tariffs," Journal of International Economics, Elsevier, vol. 22(3-4), pages 257-279, May.
  7. 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.
  8. David de Meza, 1986. "Export Subsidies and High Productivity: Cause or Effect?," Canadian Journal of Economics, Canadian Economics Association, vol. 19(2), pages 347-50, May.
  9. repec:tpr:qjecon:v:101:y:1986:i:2:p:383-406 is not listed on IDEAS
  10. Maskin, Eric S & Newbery, David M, 1990. "Disadvantageous Oil Tariffs and Dynamic Consistency," American Economic Review, American Economic Association, vol. 80(1), pages 143-56, March.
  11. Dixit, Avinash K. & Grossman, Gene M., 1986. "Targeted export promotion with several oligopolistic industries," Journal of International Economics, Elsevier, vol. 21(3-4), pages 233-249, November.
  12. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November.
  13. Drew Fudenberg & Jean Tirole, 1983. "Learning-by-Doing and Market Performance," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 522-530, Autumn.
  14. Kyle Bagwell & Robert W. Staiger, 1989. "The Sensitivity of Strategic and Corrective R&D Policy in Oligopolistic Industries," Discussion Papers 869, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
  16. repec:oup:restud:v:66:y:1999:i:2:p:447-74 is not listed on IDEAS
  17. D Leahy & J.P. Neary, 1995. "Public Policy Towards R&D in Oligopolistic Industries," CEP Discussion Papers dp0270, Centre for Economic Performance, LSE.
  18. Carmichael, Calum M., 1987. "The control of export credit subsidies and its welfare consequences," Journal of International Economics, Elsevier, vol. 23(1-2), pages 1-19, August.
  19. repec:oup:restud:v:62:y:1995:i:4:p:515-39 is not listed on IDEAS
  20. Barbara J. Spencer & James A. Brander, 1982. "International R&D Rivalry and Industrial Strategy," Working Papers 518, Queen's University, Department of Economics.
  21. Leahy, Dermot & Neary, J Peter, 1996. "International R&D Rivalry and Industrial Strategy without Government Commitment," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 322-38, October.
  22. Jonathan Eaton & Gene M. Grossman, 1983. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  23. repec:oup:restud:v:50:y:1983:i:4:p:707-22 is not listed on IDEAS
  24. Neary, J Peter, 1995. "Trade Liberalisation and Shadow Prices in the Presence of Tariffs and Quotas," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 531-54, August.
  25. Gruenspecht, Howard K., 1988. "Export subsidies for differentiated products," Journal of International Economics, Elsevier, vol. 24(3-4), pages 331-344, May.
  26. repec:oup:qjecon:v:101:y:1986:i:2:p:383-406 is not listed on IDEAS
  27. Karp, Larry S. & Perloff, Jeffrey M., 1995. "The failure of strategic industrial policies due to manipulation by firms," International Review of Economics & Finance, Elsevier, vol. 4(1), pages 1-16.
  28. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  29. Neary, J Peter, 1989. "Export Subsidies and Price Competition," CEPR Discussion Papers 327, C.E.P.R. Discussion Papers.
  30. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
  31. 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 361-66, May.
  32. Goldberg, Pinelopi Koujianou, 1995. "Strategic Export Promotion in the Absence of Government Precommitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 407-26, May.
  33. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-21, January.
  34. A. M. Spence, 1981. "The Learning Curve and Competition," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 49-70, Spring.
  35. D Leahy & J.P. Neary, 1995. "Learning by Doing," CEP Discussion Papers dp0251, Centre for Economic Performance, LSE.
  36. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March.
  37. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
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