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Abstract

This paper models physical content policies in a bilateral monopoly setting, using a cooperative game approach. For just binding or nonbinding content requirements, the policy does not induce any dead-weight lossbut alters the profit distribution in favor of the domestic supplier. This result holds as long as the inputs concerned by the policy are good substitutes in production, and when the disagreement point corresponds to low content requirements and low marginal cost for the domestic input.

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