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

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  • Yoshino, Hisao
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    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.

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    File URL: http://ir.ide.go.jp/dspace/bitstream/2344/1069/1/ARRIDE_Discussion_No.287_yoshino.pdf
    File Function: First version, 2011
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    Bibliographic Info

    Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 287.

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    Date of creation: Mar 2011
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    Publication status: Published in IDE Discussion Paper. No. 287. 2011.3
    Handle: RePEc:jet:dpaper:dpaper287

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    Related research

    Keywords: Trade policy; Exports; Taxation; Strategic trade policy; Non-linear subsidy; Bertrand-Nash equilibrium; Stackelberg equilibrium;

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    1. Qiu, Larry D, 1995. "Strategic Trade Policy under Uncertainty," Review of International Economics, Wiley Blackwell, vol. 3(1), pages 75-85, February.
    2. 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.
    3. Collie, David, 1994. "Strategic trade policy and retaliation," Japan and the World Economy, Elsevier, vol. 6(1), pages 75-88.
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