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Optimal Export Policy With Upstream Price Competition
Author(s) -
Mizuno Tomomichi,
Takauchi Kazuhiro
Publication year - 2020
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12278
Subject(s) - subsidy , cournot competition , economics , bertrand competition , upstream (networking) , downstream (manufacturing) , ad valorem tax , competition (biology) , tax competition , microeconomics , homogeneous , product differentiation , international economics , industrial organization , monetary economics , oligopoly , tax reform , public economics , market economy , computer network , ecology , operations management , physics , computer science , biology , thermodynamics
We present a third‐market model with a vertical trading structure, in which upstream input suppliers engage in homogeneous price competition. We show that, under downstream Bertrand competition, a non‐monotonic export policy may result. Specifically, the optimal policy of the exporting country can turn into a tax–subsidy–tax as the degree of product substitutability rises. We also confirm the conventional result for which the optimal policy is an export subsidy (tax) if there is Cournot (Bertrand) competition downstream, provided that the number of domestic suppliers is at an intermediate level. We further discuss bilateral policy interventions when both exporting countries offer a subsidy/tax to their domestic downstream firms. We show that a non‐monotonic export policy (tax–subsidy–tax) can arise even in this extended setting.