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Strategic trade and industrial policy towards dynamic oligopolies

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  • Neary, J. Peter
  • Leahy, Dermot

Abstract

In this paper characterise 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.

Suggested Citation

  • Neary, J. Peter & Leahy, Dermot, 1998. "Strategic trade and industrial policy towards dynamic oligopolies," LSE Research Online Documents on Economics 20246, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:20246
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    More about this item

    Keywords

    Learning by Doing; R&D Subsidies; Strategic Trade Policy; Export Subsidies; Commitment; Dynamic Consistency;
    All these keywords.

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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