TITLE:
Export-Share Requirements vs. Production Taxes under Duopoly with Differentiated Products: A Conjecture Variational Approach
AUTHORS:
Ping-Yen Lai
KEYWORDS:
Conjecture Variation, Duopoly, Imperfect Substitutes
JOURNAL NAME:
Theoretical Economics Letters,
Vol.12 No.6,
December
30,
2022
ABSTRACT: One commonly held belief, as shared by some trade theorists, suggests that
trade policy is inferior to domestic industrial policy as an interventionist device.
This paper compares the output level on domestic market between production taxes
and export-share requirements. Two firms, one domestic and one foreign/export firm,
compete in a domestic market where products are imperfect substitutes of each other,
while the foreign/export firm also supplies a portion
of its output to foreign market. When tax rate is positive and conjecture variation
is centered around Cournot, domestic output under export-share requirements will
be higher than under production taxes. The values of conjecture variation that are
centered around Cournot are bounded within an open interval, with its upper and
lower bound determined by four factors: tax rate and export share, domestic output
of firms under the tax regime,
and the degree of product substitution.