IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/68021.html
   My bibliography  Save this paper

The Myth of Profit-Shifting Trade Policies

Author

Listed:
  • Koska, Onur A.
  • Staehler, Frank

Abstract

Since Dixit (1984), it is well accepted that a home country's best policy is to ban imports in an oligopolistic market if the resulting monopoly has a cost advantage over imports. This note (i) provides a formal proof and (ii) extends this result to symmetric firms. When domestic instruments are available, the optimal policy in a non-cooperative game is to subsidize local production such that it completely replaces imports. This policy is also globally first-best.

Suggested Citation

  • Koska, Onur A. & Staehler, Frank, 2014. "The Myth of Profit-Shifting Trade Policies," MPRA Paper 68021, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:68021
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/68021/1/MPRA_paper_68021.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kyle Bagwell & Robert W. Staiger, 2012. "Profit Shifting And Trade Agreements In Imperfectly Competitive Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1067-1104, November.
    2. Maggi, Giovanni, 1999. "Strategic Trade Policy under Incomplete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 571-594, August.
    3. G. M. Grossman & K. Rogoff (ed.), 1995. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 3, number 3.
    4. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
    5. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455, Elsevier.
    6. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Onur A. Koska & Frank Stähler & Onur Yeni, 2020. "Trade and commodity taxes as environmental instruments in an open economy," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(2), pages 333-353, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kyle Bagwell & Robert W. Staiger, 2012. "Profit Shifting And Trade Agreements In Imperfectly Competitive Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1067-1104, November.
    2. Dermot Leahy & Catia Montagna, 1998. "Targeted Strategic Trade Policy with Domestic Cost Heterogeneity," Dundee Discussion Papers in Economics 100, Economic Studies, University of Dundee.
    3. Furusawa, Taiji & Higashida, Keisaku & Ishikawa, Jota, 2003. "What information is needed for welfare-enhancing policies under international oligopoly?," Japan and the World Economy, Elsevier, vol. 15(1), pages 31-46, January.
    4. Kresimir Zigic, 2011. "Strategic Interactions in Markets with Innovative Activity: The Cases of Strategic Trade Policy and Market Leadership," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b06, May.
    5. Thorsten Bayındır‐Upmann, 2003. "Strategic Environmental Policy under Free Entry of Firms," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 379-396, May.
    6. Dermot Leahy & J. Peter Neary, 2000. "Robust Rules for Industrial Policy in open Economies," Working Papers 200021, School of Economics, University College Dublin.
    7. Gerda Dewit & Dermot Leahy, 2009. "Oligopsonistic Cats and Dogs," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(3), pages 257-274, November.
    8. Iwasa, Kazumichi & Kikuchi, Toru, 2007. "Strategic Divisionalization, Product Differentiation and International Competition," MPRA Paper 5120, University Library of Munich, Germany.
    9. Martín Tobal, 2017. "Regulatory Entry Barriers, Rent Shifting and the Home Market Effect," Review of International Economics, Wiley Blackwell, vol. 25(1), pages 76-97, February.
    10. Praveen Kujal & Juan M. Ruiz, 2009. "International Trade Policy towards Monopoly and Oligopoly," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 461-475, August.
    11. Øystein Foros & Hans Kind & Lars Sørgard, 2009. "Domestic Regulation and International Trade," Journal of Industry, Competition and Trade, Springer, vol. 9(1), pages 1-16, March.
    12. Haiwen Zhou, 2018. "A Model of Institutional Complementarities in Ancient China," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 44(2), pages 286-304, April.
    13. Miyagiwa, Kaz & Ohno, Yuka, 1997. "Strategic R&D policy and appropriability," Journal of International Economics, Elsevier, vol. 42(1-2), pages 125-148, February.
    14. Collie, David R., 2017. "A Simple Model of Brexit under Oligopoly," Cardiff Economics Working Papers E2017/17, Cardiff University, Cardiff Business School, Economics Section.
    15. Nannerup, Niels, 2001. "Equilibrium pollution taxes in a two industry open economy," European Economic Review, Elsevier, vol. 45(3), pages 519-532, March.
    16. Bastos, Paulo & Straume, Odd Rune & Urrego, Jaime A., 2013. "Rain, agriculture, and tariffs," Journal of International Economics, Elsevier, vol. 90(2), pages 364-377.
    17. repec:wsr:wpaper:y:2013:i:126 is not listed on IDEAS
    18. Filipe Martins & Alberto A. Pinto & Jorge P. Zubelli, 2022. "Welfare–Balanced International Trade Agreements," Mathematics, MDPI, vol. 11(1), pages 1-20, December.
    19. Ian M. Sheldon, 2021. "Reflections on a Career as an Industrial Organization and International Economist," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(2), pages 468-499, June.
    20. Zigic, Kresimir & Ionascu, Delia, 2001. "Free Trade versus Strategic Trade as a Choice Between Two 'Second-best' Policies: A Symmetric versus Asymmetric Information Ana," CEPR Discussion Papers 2928, C.E.P.R. Discussion Papers.
    21. Ruseski, Gorazd, 1998. "International Fish Wars: The Strategic Roles for Fleet Licensing and Effort Subsidies," Journal of Environmental Economics and Management, Elsevier, vol. 36(1), pages 70-88, July.

    More about this item

    Keywords

    Import tariffs; export subsidies; profit shifting;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:68021. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.