Strategic trade policies with first-mover and second-mover advantages in a vertical structure

Kangsik Choi, DongJoon Lee and Seonyoung Lim

The Journal of International Trade & Economic Development, 2017, vol. 26, issue 5, 612-632

Abstract: With strategic trade policies, we consider first- and second-mover advantages in a vertical structure given the two-part tariff contract (composed of the input price and the fixed fee) of an upstream firm, where a home and a foreign final-good firms export to a third-country market. We find that the upstream firms’ and governments’ preference orderings over sequential versus simultaneous play and over free trade versus a regime of subsidies contrast with early results in the strategic trade policy. Thus, the endogenous market structure is that (i) the potential leader chooses the Leader role with quantity strategies, and the equilibrium trade regime is unilateral subsidy regardless of the nature of goods; (ii) with price strategies, the potential leader chooses the simultaneous timing, and the equilibrium trade regime is bilateral taxes (free trade) when goods are substitutes (complements).

Date: 2017
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DOI: 10.1080/09638199.2016.1262892

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