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Strategic Trade Policy and Signalling with Unobservable Costs

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  • Wright, D.J.

Abstract

A two-period simultaneous signalling model is developed in which first period outputs not only signal a firm's cost to its competitor, but also signal its costs to a home country government. It is shown that the existence of second period home country strategic trade policy increases the incentives that both home and foreign high-cost firms have to misrepresent themselves as low cost. As a result, in the unique separating sequential equilibrium of this signalling game, second period strategic trade policy induces low-cost firms to distort their first period outputs more than otherwise. The major implication of this result is that the existence of second strategic trade policy can reduce welfare.

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File URL: http://hdl.handle.net/2123/7486
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Bibliographic Info

Paper provided by University of Sydney, School of Economics in its series Working Papers with number 198.

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Date of creation: Apr 1994
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Handle: RePEc:syd:wpaper:2123/7486

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Postal: Sydney, NSW 2006
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Web page: http://sydney.edu.au/arts/economics
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Cited by:
  1. Bouët, Antoine & Cassagnard, Patrice, 2013. "Strategic trade policy under asymmetric information with screening," Economic Modelling, Elsevier, vol. 32(C), pages 286-293.
  2. Sonali Deraniyagala & Ben Fine, 2000. "New Trade Theory Versus Old Trade Policy: A Continuing Enigma," Working Papers 102, Department of Economics, SOAS, University of London, UK.
  3. Gasmi, Farid & Malin, Eric & Tandé, François, 2004. "Lobbying in Antidumping," IDEI Working Papers 320, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Sun, Ning & Yao, Hongxin, 2011. "Manipulable behavior in international trade," Economic Modelling, Elsevier, vol. 28(1-2), pages 60-66, January.
  5. 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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