1991/12/01 by Douglas A. Irwin · 1 citation
Economics, Econometrics and Finance · Business, Management and Accounting · #Historical Economic and Social Studies #Corporate Finance and Governance #Global trade and economics #Mercantilism #Rivalry #Economics #Monopoly #International trade #Profit (economics) #Commercial policy #Trade barrier #Incentive #Protectionism #International economics #Free trade #Duopoly #Cournot competition #Market economy #Microeconomics
paper · doi:10.1086/261801
openalex publication_date 1991/12/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/30
This paper interprets seventeenth-century mercantilism in light of recent theories of strategic trade policy. Long-distance international commerce during the mercantilist period was undertaken chiefly by state-chartered monopoly trading companies and was therefore conducted under conditions of imperfect competition. The economic structure of the Anglo-Dutch rivalry for the East India trade provides an excellent illustration of an environment in which the profit-sharting motive for strategic trade policies exists. Dutch supremacy in the early East India trade was facilitated by a managerial incentive scheme in the monopoly charter that enabled it to achieve a Stackelberg leadership position against the English. Using data from the East India trade around 1620 in a Cournot duopoly model, I find that the managerial incentives yielded greater Dutch profits than would have been obtained from a standard profit-maximizing objective and that the scope for other strategic trade policies was clearly present.