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Strategic Trade Policy and Mode of Competition: Symmetric versus Asymmetric Information

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  • Delia Ionascu

    (CERGE-EI)

  • Kresimir Zigic

    (CERGE-EI)

Abstract

In this paper, we analyze the following policy dilemma: strategic trade policy versus free trade when the domestic government is bound to intervene only after the domestic firm's strategic variable is chosen. This intervention allows the domestic firm to manipulate the domestic government and results in a socially inefficient choice of the strategic variable. However, commitment to free trade leads to forgoing the benefits from profit-shifting. Yet, from the social point of view, free trade may be optimal even under the assumption of symmetric information. Due to costly signaling, this result is reinforced in the case of asymmetric information.

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File URL: http://128.118.178.162/eps/it/papers/0106/0106001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0106001.

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Length: 39 pages
Date of creation: 13 Jun 2001
Date of revision:
Handle: RePEc:wpa:wuwpit:0106001

Note: Type of Document - Acrobat PDF; pages: 39 ; figures: included
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Web page: http://128.118.178.162

Related research

Keywords: strategic trade policy; free trade; first-best versus second best policy; government's commitment; signaling;

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References

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  1. Barbara J. Spencer & James A. Brander, 1983. "International R&D Rivalry and Industrial Strategy," NBER Working Papers 1192, National Bureau of Economic Research, Inc.
  2. Leahy, Dermot & Neary, J Peter, 1995. "Public Policy Towards R&D in Oligopolistic Industries," CEPR Discussion Papers 1243, C.E.P.R. Discussion Papers.
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  9. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November.
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  12. P. J. Thair, 1957. "Discussion," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 5(2), pages 46-49, 07.
  13. Carmichael, Calum M., 1987. "The control of export credit subsidies and its welfare consequences," Journal of International Economics, Elsevier, vol. 23(1-2), pages 1-19, August.
  14. P. J. Thair, 1957. "Discussion," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 5(1), pages 40-42, 03.
  15. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December.
  16. Levy, Santiago & Nolan, Sean, 1991. "Trade and foreign investment policies under imperfect competition : Lessons for developing countries," Journal of Development Economics, Elsevier, vol. 37(1-2), pages 31-62, November.
  17. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May.
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Cited by:
  1. Konchyn, Vadym, 2006. "The Evolution of Ukrainian Economy: New Trade Theory Evidence," MPRA Paper 588, University Library of Munich, Germany, revised 07 Sep 2006.

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