Subsidy War Research Articles

Subsidy Wars for Market Dominance in Emerging Digital Platform Markets

Subsidy Wars for Market Dominance in Emerging Digital Platform Markets

“Зеленый курс” администрации Дж. Байдена: амбиции и реалии

The ambitious “green” industrial policy program promoted by the Biden administration is designed to consolidate the US claims to its leading role in shaping the global climate change agenda. The package of legislative acts approved by the White House provides for unprecedented allocations to address priorities for decarbonizing the American economy. Pumping up targeted manufacturing industries with federal subsidies and tax incentives has generally had a positive impact on economic growth, employment, labor productivity and innovation activity. After the adoption of the Inflation Reduction Act of 2022 (IRA), the process of transforming alternative energy into the fastest growing and relatively affordable source of electricity attractive for private investment accelerated. Large-scale investments of public and private funds in renewable energy sources, electric transport and batteries have stimulated the use of national resources. At the same time, the task set by the White House to achieve sole global leadership and weaken the dependence of national industry on supplies of raw materials, components and finished products from “unfriendly” countries still looks elusive. The most significant obstacle to meeting Washington’s overstated ambitions in terms of increasing the chances of American companies competing with China is the continuing lag in building up the production base of “green” energy. The US dependence on supplies of the “green triad” – solar panels, lithium-ion batteries and electric vehicles remains high. Washington’s aggressive protectionist actions have failed to prevent Chinese companies from developing alternative energy sources, as well as the new energy vehicle industry (NEVs). The confrontation with China distracts the material resources of the United States from the tasks related to the implementation of the “new green deal”, creates obstacles to the scaling of “green” technologies. If the Biden administration or his successor as US president act even more aggressively, it will make it more difficult to achieve Washington’s climate goals, may involve some US allies in a “subsidy war” and may even serve as a trigger for a new escalation of international tensions.

Subsidy Wars for Market Share: When and How Much to Subsidize?

Nownadays, many subsidy wars for market share have broken out among firms, especially in markets with network effects. Although such subsidy wars are common and costly, there is a lack of research on firm subsidy strategies. We discuss the subsidy competition in a duopoly market where the entrant enters the market by subsidizing consumers, and the incumbent follows by setting its subsidy to maximize its competitive advantage in unit or total subsidy and simultaneous maintain its market dominance. We show that the incumbent can always find an optimal and fixed market point to subsidize when the competitive advantage in unit subsidy is considered. If the competitive advantage in total subsidy is considered, the optimal market point that the incumbent start to subsidize increases with the entrant’s investment. The incumbent cannot keep its advantage in market share with less total subsidy when the total subsidy of the entrant exceeds a threshold. Our results are robust when products are differentiated horizontally and vertically.

An Interstate Compact to End the Economic Development Subsidy Arms Race

Targeted economic development subsidies do not work as advertised. In fact, the balance of economic theory and empirical evidence suggests that they are more likely to undermine development than to enhance it. Yet policymakers face strong incentives to continue to offer subsidies. Because subsidies are economically costly but politically valuable, they create a situation similar to a prisoner’s dilemma. An interstate compact offers a solution by changing the political payoffs. Importantly, interstate compacts enable policymakers to credibly commit to ending what many already see as a race to the bottom. Ending the mutually destructive subsidy war would allow state and local governments to repurpose up to $95 billion annually to tax relief and other projects with better payoffs.

Official Export Credit Support: Competition and Compliance Issues

Aggressive competition in the official export credit support market has resulted in an increase in activity that lies outside of the main instruments regulating competition and sustainable development in export finance terms – the OECD Arrangement on Officially Supported Export Credits, (OECD Arrangement on Official Export Credits. TAD/PG(2019)1) and the OECD Common Approaches(OECD Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (The ‘Common Approaches’). TAD/ECG(2016)3). By default, the World Trade Organization’s Agreement on Subsidies and Countervailing Duties (SCM) is becoming the main legal deterrent, despite its weakness in not covering trade in services or the sustainable development dimensions of official export credit support. Yet the playing field is also unruly because of the apparent reluctance on the part of WTO Members to challenge these measures. Export Credit Agencies (ECAs), the OECD Arrangement, the OECD Common Approaches, the WTO SCM, International Working Group on Export Credit Support (IWG) The current economic slowdown in export growth, coupled with the rise of unruly export credit support programmes, presents a strategic dilemma for the Participants to the OECD Arrangement. They are faced with the difficult choice between taking a strong pro-competition position domestically, or by fighting fire with fire and developing their own non-Arrangement type export credit support programmes. The former option is the more preferable for economic efficiency considerations and long-term competitiveness, although it may result in a controversial reduced role for their ECAs. There is a collective interest in preventing publicly-funded, yet opaque, subsidy wars in export credit terms and conditions, with negative economic, political, social and environmental repercussions. This calls for heightened cooperation among ECA governments within international bodies such as the WTO, OECD and the International Working Group (IWG) on Export Credit Support. Export Credit Agencies (ECAs), the OECD Arrangement, the OECD Common Approaches, the WTO SCM, International Working Group on Export Credit Support (IWG)

The Tax Subsidy War

This Article uses controversy over Apple and other recent EU state-aid cases to explore a defect common to many anti-subsidy regimes that limit states’ ability to use subsidies to interfere with private competition. Anti-subsidy regimes typically rely on tax-expenditure analysis to identify subsidies delivered through the tax law or tax administration. Under this approach, a state confers a tax subsidy when it deviates from its own generally applicable domestic law or procedure to reduce taxes for particular enterprises, such as exporters or multinationals. Special tax reductions could take the form of reduced tax rates, tax deductions, tax credits, or the like. This tax-expenditure approach to identifying subsidies works well when both the domestic law baseline and the “special” or deviating provisions are readily identifiable. But this approach becomes intractable when the subsidy reviewer and the accused state disagree over how to define the baseline from which tax expenditures (and therefore illegal subsidies) can be measured. This baseline problem is familiar to the tax-expenditure debate, and despite the enormous importance of the tax-expenditure concept to tax policy analysis, fifty years of study has brought little progress in finding a neutral tax baseline against which tax expenditures can be judged. The European Commission’s need to evaluate tax provisions that were not easily cognizable under traditional tax-expenditure analysis—including structural rules—led it to adopt a new approach to identifying illegal subsidies in recent cases. Instead of evaluating Member State tax rules against a baseline consisting of the challenged state’s own generally applicable tax law, the Commission began to evaluate Member State tax rules against external norms. In some cases, the Commission used an internationally accepted norm; in others, the Commission judged Member State taxes against its own view of good tax policy. The Commission now finds itself in a double bind. Benchmarking tax subsidies exclusively by reference to domestic law is underinclusive; for example, it regards structural rules as incapable of conveying state aid, regardless of their actual effects on cross-border commerce. But benchmarking by norms replaces policy preferences enacted by elected representatives with the policy preferences of the unelected Commission. Furthermore, because it mistakes mismatches for state aid, benchmarking by norms is overinclusive. This Article offers an escape from the double bind of tax-expenditure analysis. The European Commission and other subsidy adjudicators could use the U.S. Supreme Court’s internal consistency test to review tax laws. The Supreme Court developed the internal consistency test to analyze dormant Commerce Clause challenges to state tax rules, including structural provisions. Under the test, the Supreme Court assumes all states apply the challenged state’s law. If cross-border tax disadvantages persist despite hypothetical harmonization, they unconstitutionally discriminate against cross-border commerce. The internal consistency test easily can be adapted for subsidy analysis by looking for cross-border tax advantages rather than disadvantages. The test offers several benefits compared to tax-expenditure analysis. First, the assumption embedded in the test—that all states apply the challenged state’s rule—has the effect of hypothetically harmonizing Member State tax laws. As a result, if the cross-border tax advantage disappears under the harmony assumption, the Commission can safely conclude that it arose from a tax mismatch, not from discriminatory subsidization by a single state. By preventing the Commission from mistaking tax mismatches for state aid, internal consistency could help the Commission avoid false positives. Second, economic analysis has shown that the second step of the internal consistency test, which considers the impact on cross-border commerce of the harmonized rule, reveals whether the challenged rule functions equivalently to a tariff or an import or export subsidy. Because this is the precise effect the state aid rules aim to prohibit, internal consistency is a reliable test for state aid. Third, internal consistency applies the same way to every tax rule—structural or non-structural. By dispensing with the need to identify a baseline—be it the state’s own “normally” applicable law or an external norm—internal consistency completely avoids a major area of dispute between the Commission and the Member States.

Uncovering Spatial Inequality in Taxi Services in the Context of a Subsidy War among E-Hailing Apps

Spatial inequalities in urban public transportation are a major concern in many countries but little of this research has focused specifically on taxi services. The taxi situation has grown more complex, as traditional ride-for-hire services face growing competition from e-hailing apps like Uber in the U.S., or Didi and Kuaidi in China. In 2014, Didi and Kuaidi triggered a nationwide subsidy war, with possible effects on the spatial inequality of taxi services. Taxi trajectory data from Shenzhen collected during the subsidy war shows that this competition reduced spatial inequality in the inner city but aggravated it in the outer city. In this study, a measure of service rate to depict the quantity of taxi services is proposed to calculate a Gini coefficient for evaluating change in the spatial inequality of taxi services. The Theil index and its decomposition were used to distinguish the contribution of Traffic Analysis Zones (TAZs) in the inner and the outer city and compare them to the overall spatial inequality of taxi services in Shenzhen, TAZs in the outer city had greater inequality in taxi services than the inner city. Furthermore, the primary contributor to overall inequality in taxi services was inequality within, rather than between, the inner and outer city. Moreover, the mean values for the changed service rates in the inner city were always larger than the outer city, and the inner city had a more equitable changed service rate than the outer city. These results could serve as a foundation for improving taxi services citywide.

Understanding the Effect of an E-Hailing App Subsidy War on Taxicab Operation Zones

Understanding taxicab operation behaviors under various management or market policies (i.e., subsidies) is critical to making informed operating decisions for e-hailing companies and for government surveillance. This paper investigates the change of taxicab operation zones in context of an e-hailing app subsidy war in China, which is an important perspective that reflects changes in taxicab behavior, such as how the operation zones of taxicabs under the e-hailing app subsidy war change and how this change affects their trip distance and cruising time. To investigate this issue, this paper utilizes three indexes to elucidate the change of taxicab operation zones, namely, the repetition ratio of operation zone pairs, the area, and the degree of dispersion in the spatial distribution. A case study using taxicab trajectories during all of the important periods of the e-hailing app subsidy war in Shenzhen, China, was conducted and produced several valuable findings; for example, with respect to taxicabs as a whole, the proportion of habitual operation zone pairs among operation zone pairs in neighboring periods is relatively stable under any subsidy policy, and changes in the operation zones have little effect on changes in the average daily trip distance and average daily cruising time. Four groups of taxicabs divided according to initial change patterns in the operation zones present different change patterns during the subsidy war. By comparing these changes before and after the subsidy war, this paper finds that the subsidy war influences the taxicabs in groups I and II, while it has little influence on the taxicabs in groups III and IV, although all groups were affected during the subsidy war. For the taxicab groups in the period with the highest subsidy, the average daily trip distance and average daily cruising time decreased, whereas, in other periods, they presented different patterns.

Understanding the Dynamics of the Pick-Up and Drop-Off Locations of Taxicabs in the Context of a Subsidy War among E-Hailing Apps

The locations where taxicabs pick up and drop off passengers are crucial to understanding the dynamics of taxi trip demand. Investigating their spatial distribution and derived dynamic features is still a key task in the fields of urban geography and transportation. Such investigations are urgently needed, considering the competition created by new communication technology services, specifically e-hailing apps such as Uber, Didi and Kuaidi. For example, a subsidy war between two e-hailing apps occurred in China in 2014. However, how the pick-up and drop-off locations of taxicabs change during subsidy wars is still an open question. This paper introduces a methodological framework that can be used to derive the pick-up and drop-off dynamics of taxicabs. It also proposes three indexes that can be used to assess the dynamics of the pick-up and drop-off locations at the city and sub-district scales, namely the numbers of daily pick ups and drop offs per taxi, average transfer distance per unit area of weighted mean centers of pick-up and drop-off locations, and degree of dispersion in the spatial distribution of pick-up and drop-off locations. This paper employs data from taxicabs in the city of Shenzhen to uncover the dynamics of their pick-up and drop-off locations. The results show that the methodological framework and the indexes introduced are powerful tools for uncovering the dynamics of the pick-up and drop-off locations of taxicabs in urban environments.

Competitiveness-shifting effects and the prisoner׳s dilemma in international R&D subsidy wars

We analyze the incentives to subsidize R&D when there is an R&D leader and an R&D follower. Without government intervention, the R&D leader always achieves higher cost competitiveness than the R&D follower. In the presence of R&D subsidies, the country that hosts the R&D follower offers higher R&D subsidies than the country that hosts the R&D leader. As a result, competitiveness-shifting effects arise, since due to the R&D subsidy the R&D follower achieves higher cost competitiveness than the R&D leader. Consequently, the country that hosts the R&D follower does not face a prisoner׳s dilemma in international subsidy wars, since even when the foreign country retaliates, it is always better off when it intervenes.

On the Evolving Relationship Between Corn and Oil Prices

ABSTRACTThe authors identified three breaks in the relationship between corn and oil prices. The first break coincides with the second oil crisis. The second break marks the end of the agricultural export subsidy war between the European Union and the United States in the second half of 1980s; the third one occurred at the beginning of the ethanol boom at the very end of the 1990s. The relationship between corn and oil prices tends to be stronger when oil prices are highly volatile and when agricultural policies create less distortion. The ethanol boom strengthened the relation between corn and oil prices, which are cointegrated only in the fourth and last regime. Impulse response functions confirm that corn prices systematically respond to oil price shocks, but the converse is not observed.

On the Evolving Relationship between Corn and Oil Prices

The relationship between corn and oil prices is not a stable one. We identified three breaks in the relationship between corn and oil prices. The first break coincides with the second oil crisis. The second break marks the end of the agricultural export subsidy war between the EU and the US in the mid 1980s while the third one occurred at the beginning of the ethanol boom at the very end of the 1990s. The relationship between corn and oil prices tends to be stronger when oil prices are highly volatile and when agricultural policies create less distortion. The ethanol boom strengthened the relation between corn and oil prices which are (were not) cointegrated in the fourth regime (first three) regime(s). Impulse response functions confirm that corn prices systematically respond to oil price shocks, but the converse is not observed.

The Dormant Commerce Clause: Economic Development in the Wake of Cuno

Indiana University, Bloomington, Indiana. I would like to thank Francina Dlouhy, Partner at Baker and Daniels, for her insight and Professor R. George Wright for his advice and encouragement. Also, I would like to thank my family for their love, support, and many sacrifices. 1. Matthew Schaefer, State Investment Attraction Subsidy Wars Resulting from a Prisoner’s Dilemma: The Inadequacy of State Constitutional Solutions and the Appropriateness of a Federal Legislative Response, 28 N.M. L. REV. 303, 306-07 (1998). 2. Peter D. Enrich, Saving the States from Themselves: Commerce Clause Constraints on State Tax Incentives for Business, 110 HARV. L. REV. 377, 380 (1996). 3. See Guy v. Baltimore, 100 U.S. 434, 443-44 (1879) (holding unconstitutional a statute that required vessels to pay wharfage fees if transporting products not from the state of Maryland); Welton v. Missouri, 91 U.S. 275, 282 (1875) (holding unconstitutional a statute that required itinerant salesmen to purchase a license if selling goods produced out-of-state); Brown v. Maryland, 25 U.S. 419, 449 (1827) (holding unconstitutional a statute that required importers of out-of-state articles to purchase a license before being permitted to sell such articles). 4. Walter Hellerstein, Commerce Clause Restraints on State Tax Incentives, 82 MINN. L. REV. 413, 413 (1997); William J. Barrett VII, Note, Problems with State Aid to New or Expanding Businesses, 58 S. CAL. L. REV. 1019, 1023-24 (1985). 5. Court Ruling Jeopardizes Ohio Projects, TOL. BUS. J., Oct. 1, 2004, at 1. THE DORMANT COMMERCE CLAUSE: ECONOMIC DEVELOPMENT IN THE WAKE OF CUNO

Veterinary epidemiology's new opportunity

The veterinary profession evolved as an infrastructure dedicated to the well-being of animal protein production. Epidemiology evolved as a discipline to enhance the efficiency and effectiveness with which that task might be accomplished. The traditional targets of these applications have been the myriad infections and conditions which impede growth, feed conversion and productivity in the animal population. Together, they have achieved measured success. In the 1990s, while increased productivity remains a continuing goal, it is overshadowed by the need to market in a world of surpluses, subsidy wars, non-tariff trade barriers and increasingly capricious public attitudes to animal protein and its perceived dangers. BSE, Listeria and Salmonella enteritidis stand as recent examples of actual or perceived food-borne threats, triggering consumer rejection of associated animal products. In their wake they leave sectors of the industry battered, if not broken, by the associated strain. Within this environment, veterinary medicine must reasses its goals. To honour its mandate of supporting the industry's viability, it must share in the resolution of this growing ‘consumer’ challenge. The profession is well positioned to address the problem, given its historic association with public health and its intimate knowledge of the pathogens of public concern. In an era of recession and restraint, epidemiology offers a venue to the assessment, and cost-effective appliation, of remedial measures. Its objectivity will feed the necessary communications link between consumer and producers. The situation offers veterinary medicine a new area of growth and satisfaction equivalent to its other endeavours. Epidemiologists are challenged to lead the effort. The image of veterinary public health need never be the same.

The agricultural trade confrontation between the United States and the European community: a challenge to our profession

Several international agricultural commodity markets, particularly the most important in terms of total value of trade namely the wheat market, are largely shaped by the current 'subsidy war' between the United States and the European Community. The consequences ofthis trade war for producers, tax payers and consumers on the two sides of the Atlantic are obviously important. They are also very significant for economic actors in many other countries affected by these markets, be they net importers or exporters. In the short term, net importers benefit from the lower real, net prices resulting from this trade war. But in the long run the uncertainties of these markets are greatly enhanced by the US-EC confrontation. For many developing countries, these uncertainties are often presented as justifications for policies promoting a greater degree of food self-sufficiency. Thus the total cost of this trade confrontation is probably very high. One would thus expect that economic analyses of this confrontation could be very valuable. They should provide a better understanding of the issues and interests at stake, of the confrontation process itself, and hopefully ideas to reduce the confrontation and the associated uncertainties. Unfortunately, there are not many such objective analyses. Ideological positions shroud the issue and agricultural economists are too often blinded by their own, often implicit, perhaps unconscious, ideological biases. The purpose ofthis paper is to call attention to the responsibility of agricultural economists, as a profession, in such a situation. For this purpose it will be useful to characterize first the nature of the US-EC agricultural trade confrontation and then to draw two main consequences of the interpretation for our profession.

Completing the European internal market: Some notes on trade policy

This paper examines international trade policy within a completed European internal market. The Ethier-Horn argument for internal tariffs in a customs union is shown to be inapplicable to most of the EC's existing, cost-increasing, barriers to trade. The implications of abolishing both Article 115, which prevents trade deflection, and Monetary Compensatory Amounts on agricultural trade are examined. National production subsidies are examined in the context of the free intra-EC mobility of capital and skilled labour. Subsidies are doubly harmful to a small open economy in the presence of factor mobility. Moreover, even where rent-snatching subsidies may be profitable for the EC as a whole, subsidy wars could erupt between member states as they compete for rent-generating industries.