Journal Article

No. 2016-10 | May 09, 2016 (Version 2: May 13, 2016)
Passive Unilateral Cross-ownership and Strategic Trade Policy PDF Icon

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 Subsidies 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

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JEL Classification

F16 L13

Versions

Citation

Luciano Fanti and Domenico Buccella (2016). Passive Unilateral Cross-ownership and Strategic Trade Policy. Economics: The Open-Access, Open-Assessment E-Journal, 10 (2016-10): 1—22 (Version 2). http://dx.doi.org/10.5018/economics-ejournal.ja.2016-10

Assessment

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Comments and Questions


Editorial Office - Version 2 - May 13, 2016
May 13, 2016 - 10:15

This present version has been slightly revised from the version published 9 May 2016 (revisions made on page 3, paragraph 3).


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