Competition Policy as Strategic Trade with Differentiated Products |
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| Authors: | Martino De Stefano Marc Rysman |
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| Institution: | 1. CRA International, 1201 F Street NW, Suite 700, Washington, DC 20004, USA;2. Boston University, 270 Bay State Road, Boston, USA;3. We are grateful to Yeon‐Koo Che, Ray Deneckere, Jonathan Eaton, Phil Haile, Larry Samuelson, Barbara Spencer, Robert Staiger, and Robert Feinberg for helpful comments and encouragement. The usual caveat applies. |
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| Abstract: | The paper analyzes how countries use competition policy as a tool for strategic trade. In the model, two countries export to a third country. Each exporting country is endowed with a set of differentiated products. Each government chooses the number of exporters for its country and the products that each exporter sells in the first period, and a tax policy in the second period. Firms choose prices or quantities independently in the third period. In the unique subgame‐perfect equilibrium, both countries group all their products within a single firm—the “national champion policy.” We study the implication of different assumptions about the timing of the game. |
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