중간재 시장 지원 정책에 대한 경제적 효과 분석: 보조금 및 조세를 중심으로

The Economic Effects of Upstream Subsidy on Market Competition and Social Welfare

Purpose - The purpose of this study is to analyze the effect of the government policy for upstream industries as a way to make upstream firms more competitive. Design/methodology/approach – We set up the game model to analyze the purpose of the study. The first game studies a economic model without government intervention while the second game examines the model with government intervention. Assuming that  number of firms compete in downstream market and  number of firms in upstream market compete in upstream market, we try to figure out the optimal government intervention on the upstream market. Findings - The result shows that the optimal intervention is to subsidize the upstream firm. However, part of the subsidy is passed through to the downstream firm, which follows the principle of ‘tax incidence’. The size of subsidy flowing to the downstream firm is strongly affected by the degree of competition in the upstream market. We also find out that the social welfare is better-off under the subsidy intervention when compared with the social welfare in the absence of the intervention. Research implications or Originality – In contrast to the conventional wisdom, we confirm that as the degree of competition in the markets, the subsidy intervention becomes less effective.