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Imperfect Competition and Strategic Trade Policy in the Food Industries

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  • Sheldon, Ian M.
  • McCorriston, Steve

Abstract

The current GATT negotiations on farm policy are aimed at removing distortions in the international trade of agricultural products. However, a large proportion of the world's trade in food and agricultural products occurs in high-value processed food products where markets can often be described as having imperfectly competitive market structures, characterised by high seller concentration, economies of scale and product differentiation. In this context, recent developments in the international economics literature have focussed on the impact of imperfect competition in international markets. In particular, a theoretical rationale has been given for the use of protectionist trade policies. Therefore, the overall aim of this paper is to explore the relevance of these theoretical developments to trade in highly processed food and related products. The paper is outlined as follows: Section 1 presents an outline of the arguments for active trade policy where markets are imperfectly competitive. Section 2 considers the optimal policies for an exporting and importing country respectively. The results indicate that even though export subsidies and import tariffs may be justified, such policies may be inferior to alternative forms of trade intervention such as maximum export and import prices. The application of the theoretical results to the US brewing and processed cheese sectors is presented in Section 3, whilst Section 4 provides a summary and conclusion.

Suggested Citation

  • Sheldon, Ian M. & McCorriston, Steve, 1990. "Imperfect Competition and Strategic Trade Policy in the Food Industries," Occasional Papers 232833, Regional Research Project NC-194: Organization and Performance of World Food Systems.
  • Handle: RePEc:ags:nc194o:232833
    DOI: 10.22004/ag.econ.232833
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    References listed on IDEAS

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    1. Sheldon, Ian M. & Henderson, Dennis R., 1990. "Motives for the International Licensing of Branded Food and Related Products," Occasional Papers 233054, Regional Research Project NC-194: Organization and Performance of World Food Systems.
    2. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    3. Cheng, Leonard K, 1988. "Assisting Domestic Industries under International Oligopoly: The Relevance of the Nature of Competition to Optimal Policies," American Economic Review, American Economic Association, vol. 78(4), pages 746-758, September.
    4. Chris M. Alaouze & A. S. Watson & N. H. Sturgess, 1978. "Oligopoly Pricing in the World Wheat Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 60(2), pages 173-185.
    5. Sheldon, Ian M. & Henderson, Dennis R., 1990. "Motives For The International Licensing Of Branded Food And Related Products," 1990 Annual meeting, August 5-8, Vancouver, Canada 270873, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Collie, David & De Meza, David, 1986. "Inadequacies of the strategic rationale of export subsidies," Economics Letters, Elsevier, vol. 22(4), pages 369-373.
    7. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
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