Strategic trade policy with interlocking cross-ownership

Luciano Fanti and Domenico Buccella

Journal of Economics, 2021, vol. 134, issue 2, No 3, 147-174

Abstract: Abstract By analysing interlocking cross-ownership, this work reconsiders the inefficiency of activist governments that set subsidies for their exporters (Brander and Spencer, J Int Econ 18:83–100). Making use of a third-market Cournot duopoly model, we show that the implementation of strategic trade policy in the form of a tax (subsidy) when goods are differentiated (complements) is Pareto-superior to free trade within precise ranges of firms’ cross-ownership, richly depending on the degree of product competition. These results challenge the conventional ones in which public intervention (1) is always the provision of a subsidy and (2) always leads to a Pareto-inferior (resp. Pareto-superior) equilibrium when products are substitutes (resp. complements).

Keywords: Export subsidy; Prisoner’s dilemma; Interlocking cross-ownership; Cournot duopoly (search for similar items in EconPapers)
JEL-codes: F13 L13 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:134:y:2021:i:2:d:10.1007_s00712-021-00745-9

DOI: 10.1007/s00712-021-00745-9

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