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COST ASYMMETRIES AND INDUSTRIAL POLICY IN VERTICALLY RELATED MARKETS

Authors

  • YASUSHI KAWABATA

    1. Nagoya City University
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    • I am grateful to Hiroshi Ohta, Masayuki Okawa, Kaz Miyagiwa, Takao Ohkawa, Toru Kikuchi, Hiroshi Kurata, Toshihiro Ichida, Rune Jansen Hagen and an anonymous referee for helpful comments. I am responsible for any remaining errors.


  • Manuscript received 28.10.09; final version received 18.9.10.

Abstract

In this paper we examine how the conventional finding from de Meza (Canadian Journal of Economics, Vol. 19 (1986), pp. 347–350) and Neary (Journal of International Economics, Vol. 37 (1994), pp. 197–218) that the country with the lowest-cost firm provides the highest subsidy modifies in a model of vertically related markets characterized by Cournot competition. We show that the country where the sum of the costs of final-good production and intermediate-good production are the lowest provides the largest production subsidies to the final good and/or the intermediate good.

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