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Network Externalities, Strategic Delegation and Optimal Trade Policy

Author

Listed:
  • Anomita Ghosh

    (National Council of Applied Economic Research)

  • Rupayan Pal

    (Indira Gandhi Institute of Development Research (IGIDR))

Abstract

This paper examines strategic trade policy for differentiated network-goods oligopolies under alternative scenarios when there is export-rivalry between two countries. We demonstrate that, in the absence of managerial delegation, the optimal trade policy entails an export tax (subsidy) if network externalities are weak (strong). However, when price competition is combined with managerial delegation, the opposite is true. Subsidizing exports, on the other hand, is always optimal under quantity competition. We also show that the welfare consequences of strategic trade policy depend not only on the mode of product market competition, but also on firms’ internal organizations and the strength of network externalities.

Suggested Citation

  • Anomita Ghosh & Rupayan Pal, 2024. "Network Externalities, Strategic Delegation and Optimal Trade Policy," NCAER Working Papers 152, National Council of Applied Economic Research.
    • Handle: RePEc:nca:ncaerw:152
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    File URL: https://www.ncaer.org/publication/network-externalities-strategic-delegation-and-optimal-trade-policy
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    More about this item

    Keywords

    Strategic trade policy; network goods; relative-performance based managerial delegation; price competition; quantity competition.;
    All these keywords.

    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
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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