Abstract
The paper analyzes a model of strategic trade policies in the presence of international cross‐ownership of firms that are heterogenous both in terms of costs and in terms of extent of foreign ownership. The equilibrium pattern of taxes and subsidies is characterized for any arbitrary cross‐ownership profile, and any number of heterogenous firms. The equilibrium subsidy (or tax) given to any firm is shown to depend, in a separable manner, on the firm’s characteristics and on the covariance of the distribution of cost and foreign ownership across firms. A neutrality theorem is proved concerning the Nash equilibrium of the game between governments: in equilibrium, the pattern of trade, the value of each firm, and world welfare are independent of the ownership pattern.
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