International trade policy when market share matters

In chapter 1, I examine optimal export policy using a two-period model of oligopolistic international competition with switching costs. A switching costs model captures the idea that market share in one period affects profits and welfare in the next. If consumers are myopic, firms and governments are patient and switching costs are significant then governments subsidize first period exports and tax second period exports, otherwise governments tax exports in both periods. Although governments may subsidize first period exports, each country is made worse off by the fact that both countries subsidize. In addition, the switching costs model provides an explanation of dumping behavior.; In chapter 2, I examine optimal "strategic import policy" using a two-period model of oligopolistic international competition with switching costs. A switching costs model captures the idea that market share in one period affects profits and welfare in the next. The home government chooses an import policy which acts as an equalizer between the foreign firms. That is, tariffs are higher for the firm which has a market share advantage and it is also higher/ for a firm with a cost advantage. Although the home government intervenes in each period, in many cases, the home country is actually made worse off. This is because by intervening in the second period, market share is not as valuable to the foreign firms. Since market share is not as valuable, they do not compete as strongly for market share in the first period and therefore prices are higher.; In chapter 3, I use a standard learning-by-doing framework to examine optimal home country protection policy and the implications of such policy on the growth of developing countries. If the home firm's potential for learning is relatively large, and the foreign firm does not have "too large" of a cost advantage relative to the home firm's profit margin then the equilibrium tariff is greater than the static Brander and Spencer "profit shifting tariff." This result occurs because a tariff on the foreign firm encourages the home firm to invest in current output which reduces future costs. If the home firm has a large potential for learning then the decrease in future cost will be enough to reduce the future price and hence increase future consumer surplus. Tariffs can thus encourage the growth of infant industries by making them more competitive on the international marketplace.