Foreign market entry, upstream market power, and endogenous mode of downstream competition (2022)
In a differentiated duopoly model of trade and FDI featuring both horizontal and ver tical product differentiation, we examine whether globalization and trade policy mea sures can generate welfare gains by leading firms to change their mode of competition. We show that when a high-quality foreign variety is manufactured under large frictions due to upstream monopoly power, a foreign firm can become a Bertrand competitor against a Cournot local rival in equilibrium, especially when the relative product quality of the foreign variety is sufficiently high and trade costs are sufficiently low (implying higher input price distortions due to double marginalization). Our results suggest that such strategic asymmetry is welfare improving and that the availability of FDI as an alternative to trade can make welfare-enhancing strategic asymmetry even more likely, especially when both input trade costs and fixed investment costs are sufficiently low and trade costs in final goods are sufficiently large.
CitationGilbert J, Koska OA, Oladi R Foreign market entry, upstream market power, and endogenous mode of downstream competition. Review of International Economics.
This citation is automatically generated and may be unreliable. Use as a guide only.
KeywordsInternational trade; upstream market power; vertical product differentiation; horizontal product differentiation; Cournot-Bertrand-Nash equilibrium
ANZSRC Fields of Research38 - Economics::3801 - Applied economics::380110 - International economics
38 - Economics
RightsAll rights reserved unless otherwise stated
Showing items related by title, author, creator and subject.
Gilbert J; Oladi R; Koska, Onur A. (Elsevier BV, 2022)In the context of a model of international trade through reciprocal dumping with horizontally differentiated goods, we study the endogenous choice of quantities and prices as strategic variables. We show that while a ...
Gilbert J; Oladi R; Koska, Onur A. (Wiley, 2021)We scrutinize international trade arising from oligopolistic rivalry (reciprocal dumping) in a model where the goods are horizontally differentiated and where otherwise symmetric firms located in different regions adopt ...
Koska OA (Springer Science and Business Media LLC, 2019)This study employs a differentiated Cournot model with both horizontal and vertical product differentiation. It scrutinizes the implications of frictions over manufacturing high quality (upstream market power) on the ...