Strategic Trade Policy in a Vertically Related Industry

Abstract

This paper investigates strategic export intervention in a final-good industry which uses an intermediate good supplied by a foreign monopolist. An export tax-cum-subsidy leads to horizontal and vertical rent extraction. The optimal government intervention in the final-good market is shown to depend on the pricing scheme employed by the intermediate-good producer.

Strategic Export Policy in Vertically Related Markets

“…This contrasts with the result in our model that under Cournot duopoly in the final‐good industry, an export subsidy is always the optimal policy. The Bernhofen (1997) model is different from our model in that there is no domestic intermediate‐good sector and thus no vertical efficiency loss effect of an export tax on the final good. In Bernhofen (1997), the positive vertical profit‐shifting effect causes an increase in the incentive for an export tax.…”

Industry Concentration and Strategic Trade Policy in Successive Oligopoly

“…4 The presence of imperfect competition in international markets may provide trading countries with an incentive to use trade policy strategically in order to capture foreign rents. 5 In the context of a successive 1 See e.g. Greenhut and Ohta (1979) and Salinger (1988) for standard models of successive Cournot oligopoly.…”

“…Austvik (1997), Radetzki (1999) and Percebois (1999) for detailed descriptive analyses of the European natural gas market. 5 Seminal contributions to the literature on strategic trade policy include Dixit international oligopoly industry, we analyse how the governments in the exporting and importing countries may use taxes (or subsidies) strategically in order to shift rents up or down the vertical value-chain. In the basic version of our model -with only one exporting country -we characterise the equilibrium of a non-cooperative policy game between the upstream and downstream governments, and show that the equilibrium outcome depends crucially on the relative degree of concentration in the upstream and downstream parts of the industry.…”

Upstream and downstream pollution taxations in vertically related markets with imperfect competition

“…A majority of the early studies have focused on the relationship between social welfare and total output. 5 Among the strategic trade literature, Bernhofen (1997) independently derives a similar result. He shows that under input price discrimination by a foreign upstream monopolist, a downstream Cournot duopoly firm with a higher rate of export subsidy faces a higher input price.…”