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Incompletely informed policymakers and trade policy in oligopolistic industries

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Author Info
Mustafa Caglayan
Murat Usman

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Abstract

We study strategic trade policy design when governments are incompletely informed about the market demand. Two symmetric, homogeneous product Cournot firms, one in each country, compete in a third country market. Contrary to what common sense would suggest, we show that if governments are less informed on the stochastic market demand both countries will be better off. Also contrary to findings in the literature, we show that when the government is partially informed, although quantity controls would be optimal for both high and low levels of demand uncertainty, subsidies are preferred for intermediate levels. Copyright Blackwell Publishing Ltd and The Victoria University of Manchester, 2004.

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Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 72 (2004)
Issue (Month): 3 (06)
Pages: 283-297
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Handle: RePEc:bla:manchs:v:72:y:2004:i:3:p:283-297

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February. [Downloadable!] (restricted)
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  2. Hwang, Hae-Shin & Schulman, Craig T., 1993. "Strategic non-intervention and the choice of trade policy for international oligopoly," Journal of International Economics, Elsevier, vol. 34(1-2), pages 73-93, February. [Downloadable!] (restricted)
  3. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May. [Downloadable!] (restricted)
  4. Neary, J Peter, 1989. "Export Subsidies and Price Competition," CEPR Discussion Papers 327, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Hwang, Hae-shin, 1994. "Heterogeneity and the Incentive to Share Information in Cournot Oligopoly Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 329-45, May. [Downloadable!] (restricted)
  6. Maggi, Giovanni, 1999. "Strategic Trade Policy under Incomplete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 571-94, August.
  7. Eaton, Jonathan & Grossman, Gene M, 1986. "Optimal Trade and Industrial Policy under Oligopoly," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 383-406, May. [Downloadable!] (restricted)
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  8. Cooper, Russell & Riezman, Raymond, 1989. "Uncertainty and the Choice of Trade Policy in Oligopolistic Industrie s," Review of Economic Studies, Blackwell Publishing, vol. 56(1), pages 129-40, January. [Downloadable!] (restricted)
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  9. Laussel, Didier, 1992. "Strategic Commercial Policy Revisited: A Supply-Function Equilibrium Model," American Economic Review, American Economic Association, vol. 82(1), pages 84-99, March.
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  10. Brainard, S. Lael & Martimort, David, 1997. "Strategic trade policy with incompletely informed policymakers," Journal of International Economics, Elsevier, vol. 42(1-2), pages 33-65, February. [Downloadable!] (restricted)
  11. Caglayan, Mustafa, 2000. "Uncertainty Resolution and Strategic Trade Policy in Oligopolistic Industries," Review of International Economics, Blackwell Publishing, vol. 8(2), pages 311-18, May. [Downloadable!] (restricted)
  12. Qiu, Larry D, 1995. "Strategic Trade Policy under Uncertainty," Review of International Economics, Blackwell Publishing, vol. 3(1), pages 75-85, February.
  13. Brainard, S Lael & Martimort, David, 1998. "Strategic Trade Policy Design with Asymmetric Information and Public Contracts Corrigendum," Review of Economic Studies, Blackwell Publishing, vol. 65(3), pages 627-30, July. [Downloadable!] (restricted)
  14. Shivakumar, Ram, 1993. "Strategic trade policy : Choosing between export subsidies and export quotas under uncertainty," Journal of International Economics, Elsevier, vol. 35(1-2), pages 169-183, August. [Downloadable!] (restricted)
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Cited by:
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  1. Matloob Piracha, 2004. "Export Subsidies and Countervailing Duties Under Asymmetric Information," Studies in Economics 0410, Department of Economics, University of Kent. [Downloadable!]
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