2. “Antitrust Policy” Versus “Industrial Policy”

Put in the context of international trade, what is viewed as an industrial policy in the existing literature may be thought of as a type of antitrust policy to seek for a beggar-thy-neighbor effect by permitting (or promoting) its manufacturing sector to take anti-competitive actions. This study demonstrates that in order to retaliate against such an industrial policy, a country may suppress competition in its service sector. For this purpose, we build a simple partial equilibrium version of the Sanyal-Jones model and demonstrate that a state in which a country suppresses competition in its manufacturing sector at the same time that its trading partner country suppresses competition in its service sector can be supported as a Nash equilibrium. In our setting, antitrust policy on the service sector is an effective policy tool only for retaliation. In other words, perfect competition can be maintained throughout the world unless the exporting country adopts an anti-competitive industrial policy, thereby triggering a retaliatory action.