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Export Subsidies as Signals of Competitiveness

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  • Collie, David
  • Hviid, Morten

Abstract

In a Cournot duopoly model of international competition between a domestic and foreign firm, it is shown that when the foreign firm has incomplete information about the marginal cost of the domestic firm then the domestic government can use an export subsidy to signal the competitiveness of its firm. This signaling effect strengthens the usual profit-shifting argument for an export subsidy. The optimal export subsidy in the signaling equilibrium may be twice as large as the optimal profit-sharing export subsidy under complete information. Copyright 1993 by The editors of the Scandinavian Journal of Economics.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 95 (1993)
Issue (Month): 3 ()
Pages: 327-39

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Handle: RePEc:bla:scandj:v:95:y:1993:i:3:p:327-39

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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Cited by:
  1. Dobrin R. Kolev & Thomas J. Prusa, 1997. "Tariff Policy for a Monopolist Under Incomplete Information," NBER Working Papers 6090, National Bureau of Economic Research, Inc.
  2. Frank Schuhmacher, . "Strategic Trade Policy under Asymmetric Information about Market Demand," Discussion Paper Serie A 573, University of Bonn, Germany.
  3. Peter Neary & Dermot Leahy, 2010. "Oligopoly and Trade," Economics Series Working Papers 517, University of Oxford, Department of Economics.
  4. Matloob Piracha, 2004. "Export Subsidies and Countervailing Duties Under Asymmetric Information," Studies in Economics 0410, Department of Economics, University of Kent.
  5. Sun, Ning & Yao, Hongxin, 2011. "Manipulable behavior in international trade," Economic Modelling, Elsevier, vol. 28(1-2), pages 60-66, January.
  6. Justus Haucap & Christian Wey & Jens Barmbold, 1998. "Location Costs, Product Quality, and Implicit Franchise Contracts," CIG Working Papers FS IV 98-08, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  7. Aditya Bhattacharjea, 2002. "Infant Industry Protection Revisited," International Economic Journal, Taylor & Francis Journals, vol. 16(3), pages 115-133.
  8. Kolev, Dobrin R. & Prusa, Thomas J., 1999. "Tariff policy for a monopolist in a signaling game," Journal of International Economics, Elsevier, vol. 49(1), pages 51-76, October.
  9. Mikko Mustonen, 2005. "Signalling cost with investment in compatibility," Netnomics, Springer, vol. 7(1), pages 39-57, April.
  10. Furusawa, Taiji & Higashida, Keisaku & Ishikawa, Jota, 2003. "What information is needed for welfare-enhancing policies under international oligopoly?," Japan and the World Economy, Elsevier, vol. 15(1), pages 31-46, January.
  11. Bou√ęt, Antoine & Cassagnard, Patrice, 2013. "Strategic trade policy under asymmetric information with screening," Economic Modelling, Elsevier, vol. 32(C), pages 286-293.
  12. Matschke, Xenia, 2003. "Tariff and quota equivalence in the presence of asymmetric information," Journal of International Economics, Elsevier, vol. 61(1), pages 209-223, October.

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