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Market Structure and the Demand for Free Trade

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  • Orlando I. Balboa
  • Andrew F. Daughety
  • Jennifer F. Reinganum

Abstract

We examine a heterogenous goods duopoly model, wherein governments simultaneously and noncooperatively choose whether or not to provide subsidies for their firms and then firms noncooperatively choose output levels, either sequentially or simultaneously. We find that government trade policy and market structure are interdependent. First, the trade regime alters traditional firm preferences over sequential versus simultaneous play. Second, different market structures influence governments' preferences about free trade versus subsidies. Further, if one of the firms is a potential leader, allowing for endogenous market structure generates equilibrium outcomes that sometimes reinforce, and sometimes counter, traditional results in the strategic trade literature.

Suggested Citation

  • Orlando I. Balboa & Andrew F. Daughety & Jennifer F. Reinganum, 2004. "Market Structure and the Demand for Free Trade," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(1), pages 125-150, March.
    • Handle: RePEc:bla:jemstr:v:13:y:2004:i:1:p:125-150
    DOI: 10.1111/j.1430-9134.2004.00006.x
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    Cited by:

    1. Fethke, Gary, 2005. "Strategic determination of higher education subsidies and tuitions," Economics of Education Review, Elsevier, vol. 24(5), pages 601-609, October.
    2. Livanis, Grigorios & Geringer, J. Michael, 2021. "Multi-stage strategic trade policy in a differentiated duopoly," Economics Letters, Elsevier, vol. 206(C).
    3. Miller, Nolan H. & Pazgal, Amit, 2005. "Strategic trade and delegated competition," Journal of International Economics, Elsevier, vol. 66(1), pages 215-231, May.
    4. Yue, Xiaohang & Mukhopadhyay, Samar K. & Zhu, Xiaowei, 2006. "A Bertrand model of pricing of complementary goods under information asymmetry," Journal of Business Research, Elsevier, vol. 59(10-11), pages 1182-1192, October.
    5. Kojun Hamada, 2009. "Second-mover advantage under strategic subsidy policy in a third market model," Economics Bulletin, AccessEcon, vol. 29(1), pages 407-415.
    6. Juan Carlos Bárcena-Ruiz, 2006. "Environmental Taxes and First-Mover Advantages," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 35(1), pages 19-39, September.
    7. Yoad Shefi & Asher Tishler, 2005. "The Effects Of The World Defense Industry And Us Military Aid To Israel On The Israeli Defense Industry: A Differentiated Products Model," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(6), pages 427-448.
    8. Benny Mantin & Asher Tishler, 2004. "The structure of the defense industry and the security needs of the country: a differentiated products model," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(5), pages 397-419.
    9. Saar Golde & Asher Tishler, 2004. "Security Needs, Arms Exports, and the Structure of the Defense Industry," Journal of Conflict Resolution, Peace Science Society (International), vol. 48(5), pages 672-698, October.
    10. Ana Espinola‐Arredondo, 2009. "Free‐Riding and Cooperation in Environmental Games," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(1), pages 119-158, February.

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    JEL classification:

    • F1 - International Economics - - Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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