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Strategic trade policies with first-mover and second-mover advantages in a vertical structure

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  • Kangsik Choi
  • DongJoon Lee
  • Seonyoung Lim

Abstract

With strategic trade policies, we consider first- and second-mover advantages in a vertical structure given the two-part tariff contract (composed of the input price and the fixed fee) of an upstream firm, where a home and a foreign final-good firms export to a third-country market. We find that the upstream firms’ and governments’ preference orderings over sequential versus simultaneous play and over free trade versus a regime of subsidies contrast with early results in the strategic trade policy. Thus, the endogenous market structure is that (i) the potential leader chooses the Leader role with quantity strategies, and the equilibrium trade regime is unilateral subsidy regardless of the nature of goods; (ii) with price strategies, the potential leader chooses the simultaneous timing, and the equilibrium trade regime is bilateral taxes (free trade) when goods are substitutes (complements).

Suggested Citation

  • Kangsik Choi & DongJoon Lee & Seonyoung Lim, 2017. "Strategic trade policies with first-mover and second-mover advantages in a vertical structure," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 26(5), pages 612-632, July.
    • Handle: RePEc:taf:jitecd:v:26:y:2017:i:5:p:612-632
    DOI: 10.1080/09638199.2016.1262892
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    Cited by:

    1. Luciano Fanti & Domenico Buccella, 2023. "Vertical industry and strategic trade policy," SN Business & Economics, Springer, vol. 3(2), pages 1-16, February.
    2. Xingye Zhou & Helian Xu, 2024. "Emissions Reduction Target Plan and Export Product Quality: Evidence from China’s 11th Five-Year Plan," Sustainability, MDPI, vol. 16(4), pages 1-21, February.

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