Cyclical dumping and correlated business cycles in imperfect markets: empirical applications to the Canadian pulp and paper industry

This paper deals with theoretical and empirical aspects of firm behaviour under imperfect competition and uncertainty. It contains an analysis of the behaviour of a firm facing a stochastic demand curve for its output in the ordinary (home market), but in addition with access to a backstop (international) market. The theory is thus a variation of the theory of dumping. Since the expected volume in general differs from the volume at the expected price, a price-setting mode is not equal to a quantity mode. Cyclical dumping, in the sense of a negative correlation between domestic and foreign sales, would occur if the firm adhered to a pricing mode in the ordinary market, and was able to learn about the demand conditions in the ordinary market before it decided how much to sell in the international market. The expirical part of the paper is an illustration of how to test for different behavioural modes and cyclical dumping by applying the model to the CAnadian pulp and paper industry. In the empirical exercise the domestic markets are the North American market for pulp and newsprint, while the backstop market are the corresponding European markets. One of the main results of this exercise is that the Canadian industry seems to operate under pricing behaviour for both pulp and newsprint, while cyclical dumping on the European market applies only for pulp.     

Cost‐Based Anti‐dumping as a Repeated Game

In this paper, we consider anti‐dumping (AD) duties as a tool to facilitate collusion between a domestic and a foreign firm in an infinitely repeated differentiated Bertrand game, where prices are publicly observable and each firm receives a privately observed i.i.d. cost shock in each period. We consider second‐best scenarios, where market‐share or production arrangement with sidepayments is not allowed. We show that there exist equilibrium‐path reciprocal ADs. The collusive (trigger) price is distorted downward compared with complete information benchmark as a trade‐off between diminishing the incentive to deviate and ensuring off‐schedule deviation gains when private cost shocks are highly favourable. The model differs from Green and Porter ( 1984 ) and Rotemberg and Saloner ( 1986 ) in that it is the private cost shocks as opposed to public demand shocks that necessitate modifications of collusion. In conclusion, AD policy may encourage collusion, and therefore, unless the source of market imperfection is carefully examined, laissez faire might be a better choice.     

Strategic competition and optimal parallel import policy

Abstract In a two‐country Hotelling type duopoly model of price competition, we show that parallel import (PI) policy can act as an instrument of strategic trade policy. The home firm’s profit is higher when it cannot price discriminate internationally if and only if the foreign market is sufficiently bigger than the domestic one. The key mechanism in the model is that the home firm’s incentive to keep its domestic price close to the optimal monopoly price affects its behavior during price competition abroad. We also analyze the welfare implications of PI policies and show that our key insights extend to quantity competition.     

OPTIMAL EXPORT AND HEDGING DECISIONS WHEN FORWARD MARKETS ARE INCOMPLETE

This paper examines the behaviour of the competitive firm that exports to two foreign countries under multiple sources of exchange rate uncertainty. There is a forward market between the home currency and one foreign country's currency, but there are no hedging instruments directly related to the other foreign country's currency. We show that the separation theorem holds when the firm optimally exports to the foreign country with the currency forward market. The full‐hedging theorem holds either when the firm exports exclusively to the foreign country with the currency forward market or when the relevant spot exchange rates are independent. In the case that the relevant spot exchange rates are positively (negatively) correlated in the sense of regression dependence, the firm optimally opts for a short (long) forward position for cross‐hedging purposes.     

国际多市场寡头条件下的贸易政策和产业政策

国际多市场寡头是Bulow( 1 985)提出的多市场寡头概念在国际贸易领域的自然延伸。在本文中 ,市场之间联系的纽带是本国企业具有规模收益递减的生产技术。本文的主要结论是 ,第一 ,如果本国企业与外国企业在外国市场进行价格竞争 ,那么 ,最优干预组合包括国内生产补贴与出口税 ,它们对本国福利的作用是一致的。第二 ,如果本国企业与外国企业在外国市场进行数量竞争 ,那么 ,最优干预政策组合包括国内生产补贴与出口补贴 ,它们作用于本国福利的方向是不一致的 ,这时 ,本国政府用国内生产补贴执行反托拉斯职能 ,用出口补贴执行利润转移职能。第三 ,作为模型的一个应用 ,本文论证了出口退税政策会加剧国内市场的扭曲 ;而且它不一定能够提高本国福利。     

FDI Policy,Greenfield Investment and Cross‐border Mergers

This paper examines a multinational's choice between greenfield investment and cross‐border merger when it enters another country via foreign direct investment (FDI) and faces the host country's FDI policy. Greenfield investment incurs a fixed plant setup cost, whereas the foreign firm obtains only a share of the joint profit from a cross‐border merger under the restriction of the FDI policy. This trade‐off is affected by market demand, cost differential, and market competition, among other things. The host country's government chooses its FDI policy to affect (or alter) the multinational's entry mode to achieve the maximum social welfare for the domestic country. We characterize the conditions shaping the optimal FDI policy and offer intuitions on FDI patterns in developing and developed countries.     

STRATEGIC EXPORT POLICY IN VERTICALLY RELATED MARKETS

This paper analyses how strategic export policies are affected by introducing an imperfectly competitive intermediate good into a Bertrand duopoly model with product differentiation, where a home and a foreign final‐good firm export to a third‐country market. It is shown that when the home and foreign markets for the intermediate good are segmented, the optimal export policy towards the final good is a tax. In contrast, under integrated markets, the optimal export intervention is a subsidy. Whether bilateral export intervention is welfare improving compared with free trade, depends on the degree of product differentiation between the home and foreign final goods.     

Certification of Origin as a Non-Tariff Barrier

This paper puts forward the opinion that the certification of origin constitutes another type of non‐tariff barrier. Indeed, certification of origin often combines both a quantity restriction and a sort of quality cost subsidy. We consider the canonical model of strategic trade policy, whereby two firms located respectively in the home country and in a foreign country are competing on the domestic market. In this framework, we show how certification can allow the domestic firm to position itself as a high quality producer. If, however, the certified firm offers the low quality good, then consumers’ surplus may be improved.     

Dumping,antidumping duties,and price undertakings

This paper examines which types of firms, from a developed country (DC) or a less developed country (LDC), tend to practice dumping, using a two-market equilibrium analysis of trade in similar products. Specifically, we present a vertical product differentiation model of duopolistic competition between a DC firm and an LDC firm under free trade to show that the DC firm sells a higher-quality product without dumping. In contrast, the LDC firm sells a lower-quality product and practices dumping in the DC market by charging a price lower than the product's price in the LDC's local market. In response to the LDC dumping, the DC government's use of an optimal antidumping duty increases its domestic welfare. The LDC's social welfare may increase if its exporting firm accepts price undertaking rather than dumping. From the perspective of world welfare, defined by aggregating the welfare of the trading countries (DC and LDC), the trade damage measure through imposing antidumping fines on LDC dumping is Pareto-improving compared to free trade (under which dumping takes place) and price undertakings.     

Tax competition for foreign direct investments and the nature of the incumbent firm

We investigate tax/subsidy competition for foreign direct investments (FDI) between countries of different size when a domestic firm is the incumbent in the largest market and we study how the nature (public or private) of the incumbent firm affects policy competition. We show that, differently from the case of a private firm, the country hosting the incumbent always benefits from FDI if the domestic firm is a public welfare‐maximizing firm. We also show that the public firm acts as a disciplinary device for the foreign multinational that will always choose the efficient welfare‐maximizing location. An efficiency‐enhancing role of policy competition may then arise only when the domestic incumbent is a private firm, whereas tax competition is always wasteful in the presence of a public firm.     

Antidumping Regulations: Anti‐Competitive and Anti‐Export

In a Bertrand duopoly model, it is shown that an antidumping regulation can be strategically exploited by the home firm to reduce the degree of competition in the home market. The home firm commits not to export to the foreign market which gives the foreign firm a monopoly in its own market. As a result the foreign firm will increase its price allowing the home firm to increase its price and its profits. If the products are sufficiently close substitutes then the higher profits in the home market are large enough to compensate for the loss of profits on exports.     

Firm Metrics with Continuous R&;D,Quality Improvement,and Cournot Quantities

The paper considers a dynamic two-firm model of intra-industry trade in which the firms compete for the same market on the basis of product reliability. By assumption, the home firm always has the reliability cost advantage but it may or may not have the manufacturing cost advantage. The results suggest that reliability improvement always helps customers in that they pay a lower full quality price. Comparing the home firm with the foreign firm, metrics such as price, sales, profit margins, and variable profits depend on the relative costs, with the low cost firm performing better. Finally, although this is not the common outcome, the paper suggests that it is possible for the reliability cost advantages gained by R&D expenditures to overcome manufacturing cost disadvantages.     

Vertically related markets, tariffs, and technology adoption

This study considers the effect of trade policy on the time of technology adoption. Home firm is dependent on a foreign vertically integrate firm for supplies of a key input before the technology adoption and can produce the intermediate input after the technology adoption. Both firms compete by Cournot in the home final product market. I show that the decrease in the tariff on final product imports and the increase in the tariff on input imports create incentives for earlier technology adoption by home firm. While maximizing the discounted sum of welfare, the domestic government should protect home firm initially. Further, provided the cost of technology adoption declined sufficiently over time, the domestic government should stimulate the earlier technology adoption by decreasing the tariff on final product imports and increasing the tariff on intermediate product imports.     

INTERNATIONAL ORIGINAL EQUIPMENT MANUFACTURING AND ORIGINAL DESIGN MANUFACTURING CONTRACTS WITH QUALITY‐DIFFERENTIATED PRODUCTS

We build a model of international subcontracting in quality‐differentiated goods. Assuming no entry in an original equipment manufacturing (OEM) market, we show that the foreign outsourcer will choose an original design manufacturing (ODM) contract only if the subcontractor is good enough at product design. However, the product quality with the ODM contract is not necessarily higher than that with the OEM contract. When the subcontracting market becomes perfectly competitive, the outsourcer will always choose an OEM contract. In a two‐period model with learning and entry effects, the foreign outsourcer chooses between different modes of manufacturing contracts. We demonstrate that a laissez‐faire policy on research and development (R&D) activity may be optimal even if the subcontracting firm can only obtain an OEM contract. In the case where the OEM market becomes perfectly competitive in the second period, we predict that a positive R&D subsidy in the first period can help the domestic subcontractor obtain OEM–ODM contracts and, as a result, national welfare rises.     

Strategic interoperability standards and trade taxes

In a two-country international trade framework, the paper considers the interplay between the governments' incentives for conducting traditional trade policies and their incentives for the policies toward compatibility between the products of the firms competing in the international market. The model assumes that one domestic and one foreign firm supply partially incompatible products for the home country market while consumers value both variety and a network externality. Motivated by the benefits of the network externality, the home government sets a standard requiring the foreign firm to guarantee a minimum level of compatibility between its own product and the product of the domestic rival. The paper analyzes the home country standard setting and import tariff policies as well as the incentives of the foreign country for imposing the export tax and conducting a policy which enhances the degree of compatibility between the rival products in the export market.     

An Antidumping Law Can Be procompetitive

Home and foreign duopolists collude in the absence of an antidumping (AD) law because competition law makes renegotiation of collusion more costly than imposition of punishment for defection. Introduction of an AD law with a weak injury standard can undermine collusion by providing a low-cost mechanism for renegotiation. This induces dumping by the foreign firm and defection by the home firm. An AD law can be procompetitive, in contrast to recent literature suggesting that an AD law can facilitate collusion. The law is asymmetric, providing a greater incentive for home-firm than foreign-firm deviation.     

Export rivalry,vertically-related markets,and optimal public ownership policy

This paper considers the optimal public ownership policy of an upstream firm which competes with a foreign private rival. Both firms supply a produced input to the domestic and foreign downstream firms that compete in an export market. The paper shows that complete privatization of the domestic upstream firm is never optimal. It will likely be fully nationalized if its market share is high, the domestic downstream firms' market share is low, and the total number of firms in the downstream is large. Simulation results reveal that the public firm's optimal profit margin may be negative and that the government ownership level may exhibit a reswitching phenomenon as the number of domestic downstream firms keeps growing. The paper sheds light on the possibility of using government ownership policy as a pseudo-trade and industrial policy.     

中国电信服务市场准入管制的随机试验模型分析

文章针对我国电信市场的行业特征,在充分讨论消费者选择和企业决策的基础上构建了一个N次多期迭代的基于随机试验的模型,模拟政府管制政策影响下的市场演化,以判断当前的市场准入管制是否有效率。研究结论认为:在技术存量不足和创新效率不高的条件下,依靠外国资本无法提高本国的消费者利益和最优技术存量。不仅如此,中国电信企业将因此而失去对本国市场的主导地位和控制力,所以我国暂不具备允许外资设立独资电信企业的条件。     

Market Size,Local Sourcing and Policy Competition for Foreign Direct Investment

This paper analyzes policy competition for a foreign‐owned monopolist firm between two asymmetric countries. In particular, one country has a larger economy than the other country. At the same time, the small country produces an intermediate good for the final good production, while the large country does not. We show that whether a country will win foreign direct investment (FDI) competition is determined by the interaction between relative transport costs of intermediate and final goods and the market size of the large country relative to that of the small country; and policy competition for FDI may Pareto weakly improve national welfare of the competing countries.     

Corporate social responsibility and strategic trade policy: An endogenous timing game and its policy implications

This study incorporates the corporate social responsibility (CSR) initiatives of a domestic firm and analyses strategic trade policy towards a foreign firm in a different market structure. We show that the tariff rate under a foreign (domestic) firm's leadership is lowest when the degree of CSR is large (small). We also show that the foreign firm's leadership yields the highest welfare when the degree of CSR is intermediate, while the domestic firm's leadership yields the highest welfare otherwise. In an endogenous‐timing game, we show that a simultaneous‐move outcome is the unique equilibrium when the degree of CSR is small; thus, it is never socially desirable. We also show that the domestic firm's leadership can be an equilibrium, which results in the highest welfare when the degree of CSR is large. Finally, when the degree of CSR is large, collusive behaviours between the domestic and foreign firms can increase welfare.