Assisting Domestic Industries under International Oligopoly: The Relevance of the Nature of Competition to Optimal Policies

Leonard K Cheng

American Economic Review, 1988, vol. 78, issue 4, 746-58

Abstract: Optimal trade and industrial policies are derived for a home market that is supplied by a domestic firm and a foreign firm. The optimal policy combination can be quite sensitive to the nature of the duopoly's competition. For example, for some cost and demand s tructures, the optimal policy under Cournot competition consists of a domestic production tax and a tariff, but that under Bertrand compet ition consists of a production subsidy and free trade. Copyright 1988 by American Economic Association.

Date: 1988
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