Strategic Trade Policy V.Tutees

Strategic Trade Policy V.Tutees - Strategic Trade Policy...

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1 Strategic Trade Policy Tutional BBA International Economics. 2 Strategic Trade Policy The theory behind Strategic Trade Policy is that government can assist domestic companies in capturing economic profits from foreign competitors. • A standard example is the aircraft industry. With high fixed cost. • Assume that two competing manufacturers, Boeing and Airbus, are considering whether to construct a new aircraft. • If either firm manufactures by itself, it will attain profits of $...... million. • If both firms manufacture, they will each suffer a loss of $...... million 3 Airbus 0 Boeing 0 Airbus 100 Boeing 0 Doesn’t Produced Airbus 0 Boeing 100 Airbus -5 Boeing -5 Produces Doesn’t Produced Produces Airbus Boeing Without Subsidy Airbus 0 Boeing 0 Airbus 110 Boeing 0 Doesn’t Produced Airbus 0 Boeing 100 Airbus 5 Boeing -5 Produces Doesn’t Produced Produces Airbus With Subsidy 4 Now assume the governments decide to subsidize Airbus production in the amount of $10 million. Even if both companies manufacture, Airbus is now certain of
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This note was uploaded on 10/13/2010 for the course INTER BUS IB121 taught by Professor Miko during the Spring '10 term at UC Riverside.

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Strategic Trade Policy V.Tutees - Strategic Trade Policy...

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