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Free Entry, Quasi-free Trade, and Strategic Export Policy

  • Schulman, Craig T
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    This paper analyzes governments' choices between strategic export subsidies and free trade as a commitment when firms are free to enter or exit in response to these choices. Entry and exit is treated as a discrete process. Within the context of a four-stage game, two types of equilibria emerge: a quasi-free-trade equilibrium in which one of the two governments commits to free trade, while the other has a Nash equilibrium subsidy that is zero and bilateral export subsidies. Concerning welfare effects, if fixed costs are large enough, both countries achieve a welfare gain relative to free trade. Copyright 1997 by Blackwell Publishing Ltd.

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    Article provided by Wiley Blackwell in its journal Review of International Economics.

    Volume (Year): 5 (1997)
    Issue (Month): 1 (February)
    Pages: 83-100

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    Handle: RePEc:bla:reviec:v:5:y:1997:i:1:p:83-100
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