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Strategic trade and industrial policy towards dynamic oligopolies
Neary, J. Peter; Leahy, Dermot
We characterize optimal trade and industrial policy in dynamic oligopolistic markets. If governments can commit to future policies, optimal first-period intervention should diverge from the profit-shifting benchmark to an extent which exactly offsets the strategic behaviour implied by Fudenberg and Tirole's "fat cats and top dogs" taxonomy of business strategies. Without government commitment, there is an additional basis for intervention, whose sign depends on the stategic substitutability between future policy and current actions. We consider a variety of applications (to R&D spillovers, consumer switching costs, etc.) and extensions to second-best, revenue-constrained and entry-promotion policies. Not applicable
Keyword(s): Learning by doing; R&D subsidies; Strategic trade policy; Export subsidies; Commitment; Dynamic consistency; F12; L13; Commercial policy; Industrial policy; International trade; Oligopolies
Publication Date:
2011
Type: Working paper
Peer-Reviewed: Unknown
Language(s): English
Institution: University College Dublin
Publisher(s): University College Dublin. School of Economics
File Format(s): other; application/pdf
First Indexed: 2012-08-25 05:18:23 Last Updated: 2018-10-11 15:11:20