Endogenous Leadership With and Without Policy Intervention: International Trade When Producer and Seller Differ
Using a vertically linked model of international trade where producers and sellers are different entities and belong to two different countries, we examine the issue of endogenous leadership. In the absence of policy intervention, there are two cases depending on whether the producer or the seller is the leader. In the presence of policy intervention, the nationality of the leader and that of the follower also becomes important. We find necessary and sufficient conditions for endogenous leadership to arise, and find that in the presence of policy intervention and lump-sum transfers, leadership by the domestic firm--whether it is a producer or a seller--will emerge as the equilibrium.