Premium
Differentiated Products, Vertical Related Markets, and Optimal Export Policy
Author(s) -
Chou Stephen JuiHsien
Publication year - 2011
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2011.00958.x
Subject(s) - product differentiation , cournot competition , economics , rivalry , homogeneous , context (archaeology) , product (mathematics) , microeconomics , competition (biology) , welfare , commercial policy , product market , international economics , international trade , market economy , paleontology , ecology , physics , geometry , mathematics , biology , incentive , thermodynamics
This paper studies the optimal export policy in the context of a vertically related industry with differentiated products, and analyzes the effects of the degree of product substitutability and market structure on the determination of such a policy. It is shown that the results obtained in a similar model with homogeneous goods rivalry no longer hold when the goods are differentiated. Indeed, the degree of product substitutability plays an important role in the determination of export policies, and also determines whether a country can be better off under a trade policy war compared to free trade. The use of a differentiated product setting also allows one to compare export policies and countries' welfare levels under both Cournot and Bertrand competition. It is found that the results of the comparison are also sensitive to the degree of product substitutability.