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Export Subsidies and Price Competition

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  • Neary, J Peter

Abstract

This paper examines optimal policy towards a home exporting firm which competes on price with a foreign firm. Two policy instruments are compared: an output subsidy and a price subsidy. The paper also considers two games: the conventional ex ante game, in which the government sets the value of the subsidy before firms set their prices, and the ex post game, where firms first set their prices in the anticipation of a subsidy by the government at the second stage. It is shown that the two types of subsidy are equivalent in the ex ante game and that a higher level of welfare can always be achieved in the ex ante than in the ex post game. This reinforces the view that optimal policy in a model characterized by Bertrand competition is an export tax rather than a subsidy.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 327.

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Date of creation: Aug 1989
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Handle: RePEc:cpr:ceprdp:327

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Related research

Keywords: Bertrand Competition; Exports; Subsidies; Trade Policy;

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Cited by:
  1. Young-Han Kim, 1999. "The Welfare Analysis of Trade Policies: The Optimal Government Intervention Timing under Incomplete Information," International Economic Journal, Taylor & Francis Journals, vol. 13(4), pages 53-70.
  2. Patrick Paul Walsh, 1991. "A General Framework for Analysing Endogenous Trade Divergences," STICERD - Economics of Industry Papers 04, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Leahy, Dermot & Neary, J Peter, 1998. "Strategic Trade and Industrial Policy Towards Dynamic Oligopolies," CEPR Discussion Papers 1968, C.E.P.R. Discussion Papers.
  4. Karp, Larry S. & Perloff, Jeffrey M., 1995. "The failure of strategic industrial policies due to manipulation by firms," International Review of Economics & Finance, Elsevier, vol. 4(1), pages 1-16.
  5. Hadhri, Moncef, 1997. "A model of interdependence between Japanese and EC Industries: Applied general equilibrium evaluation with imperfect competition," Journal of Policy Modeling, Elsevier, vol. 19(5), pages 537-565, October.
  6. Mustafa Caglayan & Murat Usman, 2004. "Incompletely informed policymakers and trade policy in oligopolistic industries," Manchester School, University of Manchester, vol. 72(3), pages 283-297, 06.
  7. Kresimir Zigic, 2001. "Strategic Trade Policy, the "Committed" versus "Non-Committed" Government, and R&D Spillovers," CERGE-EI Working Papers wp177, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  8. S. Lael Brainard & David Martimort, 1992. "Strategic Trade Policy With Incompletely Informed Policymakers," NBER Working Papers 4069, National Bureau of Economic Research, Inc.
  9. Karp, Larry & Perloff, Jeffrey M, 1993. "The Failure of Strategic Industrial Policies Due to the Manipulation by Firms," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt2tf2n8fq, Department of Agricultural & Resource Economics, UC Berkeley.

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