Passive unilateral cross-ownership and strategic trade policy

Luciano Fanti and Domenico Buccella

No 2016-7, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: In a Cournot duopoly model in which exporters compete in a third market, this paper revisits the classical issue (dating back to the pioneering work of Brander and Spencer, Export Share and International Market Share Rivalry, 1985) of the strategic trade policy choice in the presence of the passive participation of one firm in the rival. Passive cross-ownership dramatically alters the participating and participated firms' governments' choice to apply the strategic trade policy instrument, the equilibria typology and their efficiency properties. In fact, if the share of cross-ownership is sufficiently large, the participated firm's government finds optimal to tax export. Moreover, beyond an adequately high threshold, cross-ownership modifies the equilibrium from the activist regime for both countries to an asymmetric regime in which only the participating firm's government intervenes. In addition, in the case of the traditional common activist regime equilibrium, the classical prisoner's dilemma game structure may disappear.

Keywords: export subsidy; prisoner's dilemma; unilateral cross-ownership; Cournot duopoly (search for similar items in EconPapers)
JEL-codes: F16 L13 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:20167

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