Discussion Paper

No. 2016-7 | February 10, 2016
Passive Unilateral Cross-ownership and Strategic Trade Policy

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.

Data Set

JEL Classification:

F16, L13

Assessment

  • Downloads: 833

Links

Cite As

Luciano Fanti and Domenico Buccella (2016). Passive Unilateral Cross-ownership and Strategic Trade Policy. Economics Discussion Papers, No 2016-7, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2016-7


Comments and Questions


Anonymous - Referee Report 1
March 01, 2016 - 07:59

see attached file


Domenico Buccella and Luciano Fanti - Reply to Referee Report 1
April 19, 2016 - 09:45

see attached file


Anonymous - Referee Report 2
March 02, 2016 - 08:51

Referee comments
“Passive unilateral cross-ownership and strategic trade policy”

This paper extends the Brander-Spencer 3rd country market model to include cross-ownership, in fact unilateral cross-ownership, and shows that the Brander-Spencer subsidy or tax may be revised, to adjust for the profits taken away by the rival due ...[more]

... to unilateral cross-ownership.

The extension is somewhat interesting. But I have doubts about the novelty and value added of this paper. The contribution is too minor and too straightforward to be of publishable value.


Domenico Buccella and Luciano Fanti - Revised Version
April 19, 2016 - 09:46

see attached file