Strategic trade policy for network goods oligopolies

Anomita Ghosh () and Rupayan Pal
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Anomita Ghosh: Indira Gandhi Institute of Development Research

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: We analyze strategic trade policy for differentiated network goods oligopolies under alternative scenarios, when there is export rivalry between two countries. We show that, under price competition without managerial delegation, it is optimal to tax (subsidize) exports, if network externalities are weak (strong). But, the oppos ite is true under price competition with relative performance based managerial delegation in firms. In contrast, under quantity competition, the optimal trade policy always involves subsidization of exports. Nonetheless, the optimal rate of export subsidy under quantity competition is always higher than that under price competition. We also show that, under quantity (price) competition without managerial delegation, trade policy interventions in the presence of sufficiently strong (weak or very strong) network externalities lead to higher social welfare of each exporting country compared to that under free trade. However, under quantity (price) competition with managerial delegation, trade policy interventions result in Pareto inferior outcomes always (unless network externalities are strong).

Keywords: Strategic trade policy; network goods; relative performance based managerial delegation; price competition; quantity competition (search for similar items in EconPapers)
JEL-codes: D21 F12 F13 L13 L22 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-09
New Economics Papers: this item is included in nep-com, nep-ind, nep-int and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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