Strategic Trade Policies with Endogenous Choice of Competition Mode under a Vertical Structure

Kangsik Choi and Seonyoung Lim

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the endogenous choice of competition mode with strategic export policies in vertically related markets. We show that (i) regardless of the nature of goods, choosing Bertrand competition is the dominant strategy for downstream firms, which leads downstream firms to face a prisoners' dilemma; (ii) the optimal export intervention can be a subsidy under Bertrand competition; and (iii) when the choice of competition mode is delegated to upstream firms or to the upstream firm on country and the downstream firm in the other country, multiple equilibria (quantity-price and price-quantity competitions) can be sustained except those for which goods are sufficiently close complements. With the exception of such a case, Bertrand competition can be sustained with this delegation of competition mode choice. Thus, a conflict of interest between downstream and upstream firms may or may not occur, as social welfare depends on who chooses the competition mode and the degree of imperfect complementarity. This contrasts with the result under free trade, which shows that there is no conflict of interests between upstream and downstream firms with Cournot (Bertrand) competition when the goods are substitutes (complements) in equilibrium.

Keywords: Choice of Cournot and Bertrand; Subsidy; Vertical Structure; Delegation; Welfare. (search for similar items in EconPapers)
JEL-codes: F10 F12 L13 (search for similar items in EconPapers)
Date: 2014-10-04
New Economics Papers: this item is included in nep-com, nep-cse and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/59074/1/MPRA_paper_59074.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:59074

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().