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Optimal Polocies with Strategic Distortions




Recent work in optimal trade policy for imperfectly competitive markets usually identifies the optimal level of an instrument, and when more instruments are allowed, general interpretations have been unavailable, This paper analyzes the jointly optimal levels of a Variety of instruments with oligopolistic competition. A targeting principle for identifying optimal policies is derived using the concept of a "strategic distortion." It is shown how optimal policies vary with the distortions present and the number of firms, as well as assumptions about market segmentation and regulation. The principles of targeting are illustrated using agricultural marketing boards.
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Suggested Citation

  • Krishna, K. & Thursby, M., 1991. "Optimal Polocies with Strategic Distortions," Purdue University Economics Working Papers 1004, Purdue University, Department of Economics.
  • Handle: RePEc:pur:prukra:1004

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    References listed on IDEAS

    1. Barbara J. Spencer & James A. Brander, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 707-722.
    2. Just, Richard E & Schmitz, Andrew & Zilberman, David, 1979. "Price Controls and Optimal Export Policies under Alternative Market Structures," American Economic Review, American Economic Association, vol. 69(4), pages 706-714, September.
    3. Auquier, A A & Caves, R E, 1979. "Monopolistic Export Industries, Trade Taxes, and Optimal Competition Policy," Economic Journal, Royal Economic Society, vol. 89(355), pages 559-581, September.
    4. Markusen, James R., 1984. "The welfare and allocative effects of export taxes versus marketing boards," Journal of Development Economics, Elsevier, vol. 14(1), pages 19-36.
    5. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
    6. Martin K. Perry, 1982. "Oligopoly and Consistent Conjectural Variations," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 197-205, Spring.
    7. 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.
    8. Kala Krishna & Motoshige Itoh, 1988. "Content Protection and Oligopolistic Interactions," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 107-125.
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    Cited by:

    1. Elsayyad, May & Konrad, Kai A., 2012. "Fighting multiple tax havens," Journal of International Economics, Elsevier, vol. 86(2), pages 295-305.
    2. Karp, Larry S & Perloff, Jeffrey M, 1995. "Why Industrial Policies Fail: Limited Commitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 887-905, November.
    3. Jagdish Bhagwati, 1989. "Is free trade passé after all?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 125(1), pages 17-44, March.
    4. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier.
    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. Kala Krishna, 1998. "The adding up problem: a targeting approach," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 7(2), pages 151-173.
    7. Bagwell, Kyle & Staiger, Robert W., 1994. "The sensitivity of strategic and corrective R&D policy in oligopolistic industries," Journal of International Economics, Elsevier, vol. 36(1-2), pages 133-150, February.
    8. Praveen Kujal & Juan Ruiz, 2003. "International Trade Policy towards Monopolies and Oligopolies," International Trade 0302002, EconWPA, revised 24 Mar 2003.
    9. Bagwell, Kyle & Staiger, Robert W, 1992. "The Sensitivity of Strategic and Corrective R&D Policy in Battles for Monopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 795-816, November.
    10. Winston Chang & Hajime Sugeta, 2005. "Cost asymmetry, oligopolistic competition and optimal trade and industrial policies," International Economic Journal, Taylor & Francis Journals, vol. 19(1), pages 95-114.
    11. Kala Krishna & Kathleen Hogan & Phillip Swagel, 1989. "The Non-Optimality of Optimal Trade Policy: The U.S. Automobile Indust ry Revisited, 1979-1985," NBER Working Papers 3118, National Bureau of Economic Research, Inc.
    12. Costinot, Arnaud, 2008. "A comparative institutional analysis of agreements on product standards," Journal of International Economics, Elsevier, vol. 75(1), pages 197-213, May.
    13. Dermot Leahy & Catia Montagna, 1998. "Targeted Strategic Trade Policy with Domestic Cost Heterogeneity," Dundee Discussion Papers in Economics 100, Economic Studies, University of Dundee.
    14. Bandyopadhyay, Subhayu, 1996. "Growth, welfare and optimal trade taxes: a fallacy of composition," Journal of Development Economics, Elsevier, vol. 50(2), pages 369-380, August.
    15. Thursby, Marie C. & Thursby, Jerry G., 1991. "Strategic Trade Theory and Agricultural Markets: An Application to Canadian and U.S. Wheat Exports to Japan," Occasional Papers 233062, Regional Research Project NC-194: Organization and Performance of World Food Systems.
    16. Dinopoulos, Elias & Livanis, Grigorios & West, Carol, 2010. "Country of Origin Labeling (C.O.O.L.): How cool is it?," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 575-589, October.
    17. Desquilbet, Marion & Guyomard, Herve, 1999. "Public Policy In Vertically Related Markets: A Cournot Oligopoly-Oligopsony Model," 1999 Annual meeting, August 8-11, Nashville, TN 21561, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    18. Ngo, Van Long & Soubeyran, Antoine, 1997. "Cost heterogeneity, industry concentration and strategic trade policies," Journal of International Economics, Elsevier, vol. 43(1-2), pages 207-220, August.

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    market ; competition ; trade policy ; regulations;


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