Vertically Related Markets and Trade Policy in a Bargaining Framework

Larry Karp and Lucy Sioli

No 1175, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyse the interaction of asymmetric industries in international vertically related markets. Each downstream firm bargains efficiently with its domestic supplier in a first stage and with the foreign supplier in a second stage. The asymmetry in upstream costs leads to inter-industry trade. It can also cause vertical integration in the more efficient industry, and possibly vertical foreclosure. The latter occurs if competition in the final goods market is severe (the goods are close substitutes). When the more efficient industry is integrated, a tariff on imports of the final good stimulates inter-industry trade of the input, but it may increase or decrease the market share of the domestic upstream firm. The effects of a tariff depend on the industry configuration in the low-cost country.

Keywords: Cooperative Games; Multistage Bargaining; Strategic Trade Policy; Vertical Integration (search for similar items in EconPapers)
JEL-codes: C71 C78 F13 L22 (search for similar items in EconPapers)
Date: 1995-05
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Working Paper: Vertically Related Markets and Trade Policy in a Bargaining Framework (1995)
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