Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 10/04: Industry concentration and strategic trade policy in successive oligopoly

Gjermund Nese () and Odd Rune Straume ()
Additional contact information
Gjermund Nese: Institute for Research in Economics and Business Administration, Postal: Breiviksveien 40, N-5045 Bergen, Norway
Odd Rune Straume: Stein Rokkan Centre for Social Studies and University of Bergen, Postal: Department of Economics, Hermann Fossgt. 6, N-5007 Bergen, Norway

Abstract: We study a policy game between exporting and importing countries in vertically linked industries. In a successive international Cournot oligopoly, we let the governments in the importing and exporting countries use tax instruments strategically to shift rents up or down the vertical value-chain. We show that the equilibrium outcome depends crucially on the relative degree of competitiveness in the upstream and downstream parts of the industry. With respect to national welfare, a more competitive upstream industry may benefit an exporting (upstream) country while harming an importing (downstream) country. On the other hand, a more competitive downstream industry may harm exporting countries.

Keywords: Successive oligopoly; strategic trade policy; industry concentration.

JEL-codes: F12; F13; L13

29 pages, November 6, 2004

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