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High Tech Trade Policy

  • Kala Krishna

This paper analyzes the role of network externalities and expectations about them in the formulation of trade policy. Their effects are studied in duopoly situations when products are compatible and when they are incompatible and when multimarket effects are possible. Network externalities and expectations regarding the size of the network affect optimal trade policy in three ways. First, the presence of expectations effects creates a role for 'policy if. there are differences between the way the externalities operate and expectations about how they operate. Second, when goods are compatible, the existence of network externalities can cake goods complementary which reverses the direction of optimal policy. .Third, since multimarket effects occur naturally with network externalities and compatible products, purely domestic policies, which are legal under GATT, can have international profit shifting effects which may be in the national 'interest.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2182.

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Date of creation: Mar 1987
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Publication status: published as Krishna, Kala. "High Tech Trade Policy," Issues in US - EC Trade Relations,ed. by R. Baldwin, C. Hamilton and A. Sapir. Chicago: UCP, 1988.
Handle: RePEc:nbr:nberwo:2182
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