Essays in technology and trade

In the context of Cournot duopoly between two firms of different countries competing in a third country market, Brander and Spencer (1985) have shown that the optimal policy is often an export subsidy. Their work and the subsequent literature on strategic trade policy have generally abstracted from the possibility of technology licensing between firms. Chapter 2 reconsiders strategic trade policy when a high-cost and a low-cost firm belonging to different countries compete in a Cournot fashion in a third country market and technology is transferable.; With fixed-fee payment mechanism, it is shown that both the governments would often opt for a lower subsidy compared to the Brander-Spencer subsidy rate---the optimal subsidy in absence of possibility of licensing. In fact, for a range of cost parameters, optimal policy for the government of the high-cost firm turns out to be a tax. With royalties, the optimal subsidy is higher for the high-cost country and lower for the low-cost country compared to Brander-Spencer subsidy.; In Chapter 2, the licensor competes in the product market. However, often the licensor does not produce the output. Chapter 3 considers a scenario where a foreign innovator licenses a low-cost technology to the domestic firm with the highest bid. In context of a domestic Bertrand duopoly, it is shown that small foreign innovations might reduce home welfare.; In Chapter 4, I consider a two-country world with two firms in each country---one producing the final good and the other producing the intermediate good. In autarky equilibrium, firms integrate vertically to avoid the double marginalization problem. In a dynamic game with irrevocable merger decisions it is shown that trade leads to multiple equilibria---one in which the firms are always vertically integrated and in the other they are never integrated. Vertical separation in my framework essentially facilitates collusion and therfore constitutes a 'bad outcome' from the consumers' perspective. That trade causes vertical disintegration is well-known. However the existing models portray vertical separation as a 'good' outcome. The 'bad' outcome---i.e. vertical separation---is also shown to occur with intermediate inputs as perfect complements.