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Abstract
Abstract In a Cournot duopoly model in which exporters compete in a third market, this paper revisits the classical issue (dating back to the pioneering work of Brander and Spencer, Export Subsidies and International Market Share Rivalry, 1985) of the strategic trade policy choice in the presence of the passive participation of one firm in the rival. Passive cross-ownership dramatically alters the participating and participated firms’ governments’ choice to apply the strategic trade policy instrument, the equilibria typology and their efficiency properties. In fact, if the share of cross-ownership is sufficiently large, the participated firm’s government finds optimal to tax export. Moreover, beyond an adequately high threshold, cross-ownership modifies the equilibrium from the activist regime for both countries to an asymmetric regime in which only the participating firm’s government intervenes. In addition, in the case of the traditional common activist regime equilibrium, the classical prisoner’s dilemma game structure may disappear.
Highlights
The subsidy policy for exporting firms is a cornerstone of the public intervention in the productive sectors
Such a policy interventions performed by both countries are welfare inferior when compared to the case of free trade
With regard to the emergence of the endogenous equilibrium, we show that the presence of cross-ownership may be responsible for a shift from the activist regime for both countries to a mixed regime in which only the government of the participating firm intervenes, while that of the participated firm abstains from intervention
Summary
The subsidy policy for exporting firms is a cornerstone of the public intervention in the productive sectors. As regards the second industry, 1) in the early 90’s, Japanese Nippon Steel and Korean Pohang Iron, two of the worlds’ largest steelmakers, held 0.5% ownership stakes in each other subsequently increased to 1% in the late 90’s and recently planned to increase them to 3%; 2) Japan’s second largest producer, Kawasaki Steel Company, purchased a minority stake in Korean Dongkuk Steel Company, while holding (at the time) a 40% stake in American steelmaker Armco; 3) similar multilateral investments exist among American and Canadian steelmakers as well as among European steelmakers Another example of the potential interest of our results can be found in the national electricity markets of North-Europe (Amundsen and Bergman, 2002) where trade policies have been drastically changed at the end of nineties, with the elimination of border tariffs in Norway, Sweden, Finland and Denmark.
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