STRATEGIC TRADE POLICY

1
STRATEGIC TRADE POLICY

• PROFIT SHIFTING

2
TWO-FIRM COMPETITION
Airbus has no incentive to enter
Boeing moves first
3
EFFECTS OF SUBSIDY TO AIRBUS
Airbus enters boeing exits airbus profits exceed
subsidy
25 subsidy to airbus
4
TWO-FIRM COMPETITION AN ALTERNATIVE CASE
Boeing does not exit when airbus enters
5
EFFECTS OF SUBSIDY TO AIRBUS ALTERNATIVE CASE
Subsidy fails to act as a deterrent to
boeing subsidy raises airbus profits by less
than the subsidy