Trade Policy in the Face of Price and Non-Price Strategies
22 Pages Posted: 16 Jan 2011
Date Written: January 15, 2011
Abstract
When selling their products domestically or internationally firms rely on more than just price as a strategic variable. Any trade policy that affects or limits the use of one variable will likely have strategic consequences for the use of all the others. Using a Hotelling model with vertical differentiation we focus on how trade policy barriers alter price and non-price competition on the goods market. The main results are as follows: first, no matter whether the trade restriction (tariff) is placed on the non-price instrument or on the good itself, the foreign (domestic) firm prefers to increase (decrease) its use of its pricing tool and give up some of (increase) its use of the non-price instrument. Second, in the presence of a non-price instrument, tariffs do not always lead both firms to increase their price: it can lead the foreign firm to decrease its (final) price.
Keywords: Trade Policy, Spatial Competition, Non-Price Strategies, Advertising
JEL Classification: D43, F13
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Sensitivity of Strategic and Corrective R&D Policy in Oligopolistic Industries
By Kyle Bagwell and Robert W. Staiger
-
Robust Rules for Industrial Policy in Open Economies
By Dermot Leahy and J. Peter Neary
-
Free Trade vs. Strategic Trade: A Peek into Pandora's Box
By Gene M. Grossman and Giovanni Maggi
-
Symmetrical Research Joint Ventures: Cooperative Substitutes and Complements
By Dermot Leahy and J. Peter Neary
-
R&D Policies, Trade and Process Innovation
By Jan I. Haaland and Hans Jarle Kind
-
By Dermot Leahy and J. Peter Neary
-
Cooperative and Non-Cooperative R&D Policy in an Economic Union
By Jan I. Haaland and Hans Jarle Kind
-
Product Differentiation and Endogenous Mode of Competition
By Michele Polo and Massimo Motta
-
By Delia Ionascu and Krešimir Žigić
-
Strategic Trade Policy with Endogenous Product Differentiation