Abstract

This Thesis presents three essays in the area of strategic trade theory and policy. The first essay presents an analysis of trade and welfare between countries with asymmetric conditions. A two-period two-country address model of product differentiation is examined in which firms face an initial period of autarky. Trade takes place in the subsequent period and firms fully anticipate switches in trade regimes. Results suggest that historical (domestic) conditions matter a lot on the international market place. Firms that come from countries with a larger market tend to develop longer product lines, which puts that country in a dominant position in international competition. The model is also used to analyse gains/losses from trade in relation to country size. The second essay investigates the differential effects of specific and ad-valorem tariffs on quality, price and welfare in an oligopolistic industry consisting of foreign and domestic firms. These effects are shown to depend on the location of the home and foreign firms in the quality spectrum. Both tariffs are ranked and conditions for either tariff to be welfare superior are derived. Finally, the third essay presents an analysis of trade policy with endogenous market structure. A "third market model" is specified. Using a simple framework in which industry structure is derived endogenously as the outcome of product line decisions by firms, we show that governments have an incentive to affect the equilibrium product composition by setting non-zero subsidy rates in order to maximize domestic welfare. Subsidies may be uniform or non-uniform across goods and the optimal policy exhibits strong discontinuities as domestic welfare maximization implies a switch of regimes.