Optimal trade strategy of a regional economy by food exports

This paper examines the export promotion of processed foods by a regional economy and regional vitalisation policy. We employ Bertrand models that contain a major home producer and a home producer in a local area. In our model, growth in the profit of one producer does not result in an increase in the profit of the other, despite strategic complements. We show that the profit of the producer in the local area decreases because of the deterioration of a location condition, and its profit increases through the reinforcement of the administrative guidance. Furthermore, when the inefficiency of the location worsens, the local government should optimally decrease the level of administrative guidance. Hence, the local government should strategically eliminate this inefficiency to maintain a sufficient effect of administrative guidance.