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Incompletely informed policymakers and trade policy in oligopolistic industries

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  • Mustafa Caglayan
  • Murat Usman

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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  1. Brainard, S.L. & Martimort, D., 1992. "Strategic Trade Policy with Incompletely Informed Policymakers," Papers, Toulouse - GREMAQ 92.277, Toulouse - GREMAQ.
  2. Caglayan, Mustafa, 2000. "Uncertainty Resolution and Strategic Trade Policy in Oligopolistic Industries," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 8(2), pages 311-18, May.
  3. Jonathan Eaton & Gene M. Grossman, 1983. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  4. Laussel, D., 1990. "Strategic Commercial Policy Revisited: A Supply Function Equilibrium Model," G.R.E.Q.A.M., Universite Aix-Marseille III 90a05, Universite Aix-Marseille III.
  5. Brainard, S Lael & Martimort, David, 1998. "Strategic Trade Policy Design with Asymmetric Information and Public Contracts Corrigendum," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(3), pages 627-30, July.
  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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 571-94, August.
  7. Shivakumar, Ram, 1993. "Strategic trade policy : Choosing between export subsidies and export quotas under uncertainty," Journal of International Economics, Elsevier, Elsevier, vol. 35(1-2), pages 169-183, August.
  8. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, Elsevier, vol. 36(3-4), pages 333-354, May.
  9. Cooper, Russell & Riezman, Raymond, 1989. "Uncertainty and the Choice of Trade Policy in Oligopolistic Industrie s," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 56(1), pages 129-40, January.
  10. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  11. Arvan, Lanny, 1991. "Flexibility versus commitment in strategic trade policy under uncertainty : A model of endogenous policy leadership," Journal of International Economics, Elsevier, Elsevier, vol. 31(3-4), pages 341-355, November.
  12. Neary, J Peter, 1989. "Export Subsidies and Price Competition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 327, C.E.P.R. Discussion Papers.
  13. Hwang, Hae-Shin & Schulman, Craig T., 1993. "Strategic non-intervention and the choice of trade policy for international oligopoly," Journal of International Economics, Elsevier, Elsevier, vol. 34(1-2), pages 73-93, February.
  14. Qiu, Larry D, 1995. "Strategic Trade Policy under Uncertainty," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 3(1), pages 75-85, February.
  15. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 329-45, May.
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Cited by:
  1. Matloob Piracha, 2004. "Export Subsidies and Countervailing Duties Under Asymmetric Information," Studies in Economics, Department of Economics, University of Kent 0410, Department of Economics, University of Kent.

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