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Optimal export policy with upstream price competition


  • Tomomichi Mizuno

    () (Graduate School of Economics, Kobe University)

  • Kazuhiro Takauchi

    () (Faculty of Business and Commerce, Kansai University)


We constructed a third-market model with a vertical trading structure in which input suppliers engage in the homogeneous price competition `a la Dastidar (1995). We show that in the case of downstream Bertrand competition, a non-monotonic export policy may appear, that is, the optimal export policy can change like a tax-subsidy-tax as the degree of product-substitutability rises. We also show that when the number of domestic input suppliers is at an intermediate level, the conventional result in which the optimal policy is an export subsidy (tax) if downstream is Cournot (Bertrand) rivalry remains. We further discuss welfare comparisons between downstream Cournot and Bertrand cases.

Suggested Citation

  • Tomomichi Mizuno & Kazuhiro Takauchi, 2018. "Optimal export policy with upstream price competition," Discussion Papers 1805, Graduate School of Economics, Kobe University.
  • Handle: RePEc:koe:wpaper:1805

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    References listed on IDEAS

    1. Dastidar, Krishnendu Ghosh, 1995. "On the Existence of Pure Strategy Bertrand Equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(1), pages 19-32, January.
    2. Marie-Laure Cabon-Dhersin & Nicolas Drouhin, 2012. "Tacit collusion in a one-shot game of price competition with soft capacity constraints," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00709093, HAL.
    3. Hong Hwang & Yan‐Shu Lin & Ya‐Po Yang, 2007. "Optimal Trade Policies and Production Technology in Vertically Related Markets," Review of International Economics, Wiley Blackwell, vol. 15(4), pages 823-835, September.
    4. 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.
    5. Ishikawa, Jota & Spencer, Barbara J., 1999. "Rent-shifting export subsidies with an imported intermediate product," Journal of International Economics, Elsevier, vol. 48(2), pages 199-232, August.
    6. David Flath, 2012. "Are There Any Cournot Industries in Japan?," Japanese Economy, Taylor & Francis Journals, vol. 39(2), pages 3-36.
    7. Yasushi Kawabata, 2010. "Strategic Export Policy In Vertically Related Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 62(2), pages 109-131, April.
    8. Winston W. Chang & Hajime Sugeta, 2004. "Conjectural Variations, Market Power, and Optimal Trade Policy in a Vertically Related Industry," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 12-26, February.
    9. Krishnendu Dastidar, 2001. "Collusive outcomes in price competition," Journal of Economics, Springer, vol. 73(1), pages 81-93, February.
    10. 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.
    11. Giuseppe Francesco Gori & Luca Lambertini & Alessandro Tampieri, 2014. "Trade costs, FDI incentives, and the intensity of price competition," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(4), pages 371-385, December.
    12. Yasushi Kawabata, 2012. "Cost Asymmetries And Industrial Policy In Vertically Related Markets," Manchester School, University of Manchester, vol. 80(6), pages 633-649, December.
    13. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    14. Marie‐Laure Cabon‐Dhersin & Nicolas Drouhin, 2014. "Tacit Collusion in a One‐Shot Game of Price Competition with Soft Capacity Constraints," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(2), pages 427-442, June.
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    Cited by:

    1. Takauchi, Kazuhiro & Mizuno, Tomomichi, 2020. "Endogenous transport price, R&D spillovers, and trade," MPRA Paper 102391, University Library of Munich, Germany.
    2. Kazuhiro Takauchi & Tomomichi Mizuno, 2019. "Is competition in the transport industry bad?A welfare analysis of R&D with inter-regional transportation," Discussion Papers 1910, Graduate School of Economics, Kobe University.

    More about this item


    Upstream price competition; Export subsidy/tax; Non-monotonic policy; Product substitutability;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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