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Incompletely Informed Policymakers and Trade Policy in Oligopolistic Industries

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  • Mustafa Caglayan

    ()
    (University of Liverpool)

  • Murat Usman

    (Koc University)

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.

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Bibliographic Info

Paper provided by University of Liverpool Management School in its series Research Papers with number 2003_06.

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Length: 21 pages
Date of creation: 11 Jun 2003
Date of revision:
Handle: RePEc:liv:livedp:2003_06

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Postal: Management School University of Liverpool, Chatham Street, Liverpool, L69 7ZH, Great Britain
Phone: +44(0)151 795 3108
Fax: +44(0)151 795 3004
Web page: http://www.liv.ac.uk/management/
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Keywords: Trade Policy; Incomplete Information; Oligopoly;

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References

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  1. 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.
  2. Laussel, D., 1990. "Strategic Commercial Policy Revisited: A Supply Function Equilibrium Model," G.R.E.Q.A.M. 90a05, Universite Aix-Marseille III.
  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.
  4. Neary, J Peter, 1989. "Export Subsidies and Price Competition," CEPR Discussion Papers 327, C.E.P.R. Discussion Papers.
  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.
  6. Brainard, S.L. & Martimort, D., 1992. "Strategic Trade Policy with Incompletely Informed Policymakers," Papers 92.277, Toulouse - GREMAQ.
  7. Qiu, Larry D, 1995. "Strategic Trade Policy under Uncertainty," Review of International Economics, Wiley Blackwell, vol. 3(1), pages 75-85, February.
  8. Cooper, Russell & Riezman, Raymond, 1989. "Uncertainty and the Choice of Trade Policy in Oligopolistic Industrie s," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 129-40, January.
  9. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  10. Brainard, S Lael & Martimort, David, 1998. "Strategic Trade Policy Design with Asymmetric Information and Public Contracts Corrigendum," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 627-30, July.
  11. 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.
  12. Arvan, Lanny, 1991. "Flexibility versus commitment in strategic trade policy under uncertainty : A model of endogenous policy leadership," Journal of International Economics, Elsevier, vol. 31(3-4), pages 341-355, November.
  13. 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.
  14. Caglayan, Mustafa, 2000. "Uncertainty Resolution and Strategic Trade Policy in Oligopolistic Industries," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 311-18, May.
  15. 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.
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Cited by:
  1. Matloob Piracha, 2004. "Export Subsidies and Countervailing Duties Under Asymmetric Information," Studies in Economics 0410, Department of Economics, University of Kent.

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