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Strategic trade policy and non-linear subsidy : in the case of price competition

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  • Yoshino, Hisao

Abstract

In a strategic trade policy, it is assumed, in this paper, that a government changes disbursement or levy method so that the reaction function of home firm approaches infinitely close to that of foreign firm. In the framework of Bertrand-Nash equilibrium, Eaton and Grossman[1986] showed that export tax is preferable to export subsidy. In this paper, it is shown that export subsidy is preferable to export tax in some cases in the framework of Bertrand-Nash equilibrium, considering the uncertainty in demand. Historically, many economists mentioned non-linear subsidy or tax. However, optimum solution of it has not yet been shown. The optimum solution is shown in this paper.

Suggested Citation

  • Yoshino, Hisao, 2011. "Strategic trade policy and non-linear subsidy : in the case of price competition," IDE Discussion Papers 287, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper287
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    References listed on IDEAS

    as
    1. Mahmudul Anam & Shin-Hwan Chiang, 2000. "Export market correlation and strategic trade policy," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 41-52, February.
    2. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November.
    3. Helpman, Elhanan, 1992. "Endogenous macroeconomic growth theory," European Economic Review, Elsevier, vol. 36(2-3), pages 237-267, April.
    4. Qiu, Larry D, 1995. "Strategic Trade Policy under Uncertainty," Review of International Economics, Wiley Blackwell, vol. 3(1), pages 75-85, February.
    5. Collie, David, 1994. "Strategic trade policy and retaliation," Japan and the World Economy, Elsevier, vol. 6(1), pages 75-88.
    6. Geroski, P.A., 1988. "James Friedman, Game Theory with Applications to Economics, Oxford University Press, Cambridge, Massachusetts and London, England (1986), p. 262," International Journal of Industrial Organization, Elsevier, vol. 6(2), pages 275-277.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Trade policy; Exports; Taxation; Strategic trade policy; Non-linear subsidy; Bertrand-Nash equilibrium; Stackelberg equilibrium;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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