High Tech Trade Policy

42 Pages Posted: 21 May 2004 Last revised: 20 Jun 2021

See all articles by Kala Krishna

Kala Krishna

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 1987

Abstract

This paper analyzes the role of network externalities and expectations about them in the formulation of trade policy. Their effects are studied in duopoly situations when products are compatible and when they are incompatible and when multimarket effects are possible. Network externalities and expectations regarding the size of the network affect optimal trade policy in three ways. First, the presence of expectations effects creates a role for 'policy if. there are differences between the way the externalities operate and expectations about how they operate. Second, when goods are compatible, the existence of network externalities can cake goods complementary which reverses the direction of optimal policy. .Third, since multimarket effects occur naturally with network externalities and compatible products, purely domestic policies, which are legal under GATT, can have international profit shifting effects which may be in the national 'interest.

Suggested Citation

Krishna, Kala, High Tech Trade Policy (March 1987). NBER Working Paper No. w2182, Available at SSRN: https://ssrn.com/abstract=420284

Kala Krishna (Contact Author)

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