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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
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Handle: RePEc:cpr:ceprdp:1968
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  1. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March.
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  4. J. Peter Neary, 1989. "Export subsidies and price competition," Working Papers 198902, School of Economics, University College Dublin.
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  9. Leahy, Dermot & Neary, J Peter, 1995. "International R&D Rivalry and Industrial Strategy without Government Commitment," CEPR Discussion Papers 1199, C.E.P.R. Discussion Papers.
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  14. J. Peter Neary, 1990. "Cost asymmetries in international subsidy games : should governments help winners or losers?," Working Papers 199008, School of Economics, University College Dublin.
  15. Leahy, Dermot & Neary, J Peter, 1997. "R&D Spillovers and the Case for Industrial Policy in an Open Economy," CEPR Discussion Papers 1671, C.E.P.R. Discussion Papers.
  16. J. Peter Neary & Paul O'Sullivan, 1998. "Beat 'em or join 'em: export subsidies versus international research joint ventures in oligopolistic markets," LSE Research Online Documents on Economics 20247, London School of Economics and Political Science, LSE Library.
  17. 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.
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  20. 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.
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  26. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 515-539.
  27. Neary, J Peter, 1989. "Trade Liberalization and Shadow Prices in the Presence of Tariffs and Quotas," CEPR Discussion Papers 345, C.E.P.R. Discussion Papers.
  28. 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.
  29. 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.
  30. D Leahy & J.P. Neary, 1995. "Learning by Doing," CEP Discussion Papers dp0251, Centre for Economic Performance, LSE.
  31. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
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  33. Dermot Leahy & J. Peter Neary, 1999. "Learning by Doing, Precommitment and Infant-Industry Promotion," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 447-474.
  34. 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.
  35. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
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