Competition Policy as Strategic Trade with Differentiated Products

Martino De Stefano and Marc Rysman

Review of International Economics, 2010, vol. 18, issue 4, 758-771

Abstract: The paper analyzes how countries use competition policy as a tool for strategic trade. In the model, two countries export to a third country. Each exporting country is endowed with a set of differentiated products. Each government chooses the number of exporters for its country and the products that each exporter sells in the first period, and a tax policy in the second period. Firms choose prices or quantities independently in the third period. In the unique subgame‐perfect equilibrium, both countries group all their products within a single firm—the “national champion policy.” We study the implication of different assumptions about the timing of the game.

Date: 2010
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