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Strategic Trade Policy and Location of the Upstream Firm
Department of International Business, NKUST, Taiwan
Department of International Business, NKUST, Taiwan
Department of International Business, NKUST, Taiwan
- 1 Department of International Business, NKUST, Taiwan
- 2 Department of International Business, NKUST, Taiwan
- 3 Department of International Business, NKUST, Taiwan
American Journal of Industrial and Business Management·Volume 16 (2026)·Pages 407–420·Published 31 March 2026·DOI10.4236/ajibm.2026.164021
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Abstract
This paper examines how the location of the upstream firm shapes optimal trade policy in a vertically related industry. Following the framework of Bernhofen (1997) , when the upstream firm is located inside or outside the exporting country, trade policy affects welfare not only through horizontal competition in the final-good market but also through vertical interactions with an upstream firm possessing market power. In such a setting, export policies (tariffs or subsidies) influence the derived demand elasticity faced by the upstream firm, thereby altering its pricing behavior and the allocation of rents across countries.
KeywordsLocationStrategic Trade PolicyTariffSubsidy
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