This paper investigates the resource reallocation effected by content protection and content preference schemes under alternative assumptions regarding the definition of domestic content, the number of intermediate goods, and the market structure of the domestic intermediate good industry. Content protection is shown to be equivalent to a combination of more familiar commercial policies. However, the extent of application of these policies is determined endogenously by parameters of the production functions for intermediate and final goods. A number of anomalous and undesirable outcomes that may result from content protection and content preference are discussed.

We develop a two-country model of endogenous innovation and imitation in order to study the interactions between these two processes. Firms in the North race to bring out the next generation of a set of technology-intensive products. Each product potentially can be improved a countably infinite number of times, but quality improvements require the investment of resources and entail uncertain prospects of success. In the South entrepreneurs invest resources in order to learn the production processes that have been developed in the North. All R&D investment decisions are made by forward-looking, profit-maximizing entrepreneurs. The steady-state equilibrium is characterized by constant aggregate rates of innovation and imitation. We study how these rates respond to changes in the sizes of the two regions and to policies in each region to promote learning.

Journal Article Trade and Industrial Policy Under Oligopoly: Reply Get access Jonathan Eaton, Jonathan Eaton University of Virginia Search for other works by this author on: Oxford Academic Google Scholar Gene M. Grossman Gene M. Grossman Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 103, Issue 3, August 1988, Pages 603–607, https://doi.org/10.2307/1885548 Published: 01 August 1988

In this paper we provide an integrative treatment of the welfare effects of trade and industrial policy under oligopoly, and characterize qualitatively the form that optimal intervention takes under a variety of assumptions about the number of firms, their conjectures about the response of their rivals to their actions, the substitutability of their productsand the markets in which they are sold. We find that when no domestic consumption occurs optimal policy under duopoly with a single home firm depends on the difference between firms' actual responses to their rivals and the response that their rivals' conjecture. If conjectures are consistent , free trade is optimal. A tax or subsidy is indicated depending on the sign of the difference between the conjectured and the actual reponse.With more than one home firm but still no domestic consumption, an export tax is indicated if conjectures are consistent. Production subsidies and export tax-cum-subsidies can raise national welfare in the presence of domestic consumption, because these policies can mitigate the extent of the consumption distortion implicit in the deviation of price from marginal cost.

We study a world with national external economies of scale at the industry level. In contrast to the standard treatment with perfect competition and two industries, we assume Bertrand competition in a continuum of industries. With Bertrand competition, each firm can internalize the externalities from production by setting a price below those set by others. This out-of-equilibrium threat eliminates many of the “pathologies” of the standard treatment. There typically exists a unique equilibrium with trade guided by “natural” comparative advantage. And, when a country has CES preferences and any finite elasticity of substitution between goods, gains from trade are ensured.

Forward-looking investments determine the resilience of firms’ supply chains. Such investments confer externalities on other firms in the production network. We compare the equilibrium and optimal allocations in a general equilibrium model with an arbitrary number of vertical production tiers. Our model features endogenous investments in protective capabilities, endogenous formation of supply links, and sequential bargaining over quantities and payments between firms in successive tiers. We derive policies that implement the first-best allocation, allowing for subsidies to input purchases, network formation, and investments in protective capabilities. The first-best policies depend only on production function parameters of the pertinent tier. When subsidies to transactions are infeasible, the second-best subsidies for resilience depend on production function parameters throughout the network, and subsidies are larger upstream than downstream whenever the bargaining weights of buyers are nonincreasing along the chain.

We study the positive and normative effects of counterfeiting, i.e., trademark infringement, in markets where consumers are not deceived by forgeries. Consumers are willing to pay more for counterfeits than for generic merchandise of similar quality because they value the prestige associated with brand-name trademarks. Counterfeiters of status goods impose a negative externality on consumers of genuine items, as fakes degrade the status associated with a given label. But counterfeits allow consumers to unbundle the status and quality attributes of the brand-name products, and alter the competition among oligopolistic trademark owners. We analyze two policies designed to combat counterfeiting: enforcement policy which increases the likelihood of confiscation of illegal items, and the imposition of a tariff on low-quality imports.

In industries with imperfect consumer information, the lack of a reputation puts latecomers at a competitive disadvantage vis-à-vis established firms. We consider whether the existence of such informational barriers to entry provides a valid reason for temporarily protecting infant producers of experience goods and services. Our model incorporates both moral hazard in an individual firm's choice of quality and adverse selection among potential entrants into the industry. We find that infant-industry protection often exacerbates the welfare loss associated with these market imperfections.

Jonathan Eaton, Gene M. Grossman, William H. Kaempfer, Edward Tower; The Impact of Monopoly Pricing on the Lerner Symmetry Theorem: A Comment*, The Quarter