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Uniform Subsidy Reductions in International Oligopoly

Author

Listed:
  • Sandin, Rickard

    (Department of Economics)

Abstract

This paper studies the effect of production subsidies used as strategic instruments by two rivalling countries whose firms differ in production efficiency. In particular, it examines the welfare effects of a uniform subsidy reduction from the Cournot-Nash equilibrium under different assumptions regarding technology and taste. It is found that the net exporter (usually the efficient country) gains while the net importer (usually the inefficient country) loses from a uniform subsidy reduction. Results show that a non-linear demand function or marginal cost functions with different slopes across countries is necessary to obtain an increase in total welfare.

Suggested Citation

  • Sandin, Rickard, 1996. "Uniform Subsidy Reductions in International Oligopoly," SSE/EFI Working Paper Series in Economics and Finance 141, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0141
    as

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    More about this item

    Keywords

    Cournot oligopoly; heterogeneous countries; production subsidies;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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