How Strategic Trade Policy Leads to Mixed Cournot–Bertrand Competition?

Abstract

This paper revisits the link between strategic trade policies and the mode of competition in the product market, emphasizing the emergence of a different mode of competition if only one of the two governments implements such a policy. We show that with an endogenous mode of competition and an asymmetric strategic export policy we can lead to a mixed Cournot–Bertrand competition between firms. If the game is sequential and the second government wishes to react to this policy, we show that the final equilibrium will be even more unfavorable to the newly protected national leader: the second firm would not prefer this retaliation to be implemented. This reinforces the interest of the asymmetrical framework of this model.

Keywords

Competition mode; Cournot–Bertrand; endogenization; trade;

JEL codes

F1: Trade
F12: Models of Trade with Imperfect Competition and Scale Economies • Fragmentation
F13: Trade Policy • International Trade Organizations
F16: Trade and Labor Market Interactions