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Export Subsidies and Price Competition

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  • Neary, J Peter

Abstract

This paper examines optimal policy towards a home exporting firm which competes on price with a foreign firm. Two policy instruments are compared: an output subsidy and a price subsidy. The paper also considers two games: the conventional ex ante game, in which the government sets the value of the subsidy before firms set their prices, and the ex post game, where firms first set their prices in the anticipation of a subsidy by the government at the second stage. It is shown that the two types of subsidy are equivalent in the ex ante game and that a higher level of welfare can always be achieved in the ex ante than in the ex post game. This reinforces the view that optimal policy in a model characterized by Bertrand competition is an export tax rather than a subsidy.

Suggested Citation

  • Neary, J Peter, 1989. "Export Subsidies and Price Competition," CEPR Discussion Papers 327, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:327
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    Cited by:

    1. Mustafa Caglayan & Murat Usman, 2004. "Incompletely informed policymakers and trade policy in oligopolistic industries," Manchester School, University of Manchester, vol. 72(3), pages 283-297, June.
    2. Brainard, S. Lael & Martimort, David, 1997. "Strategic trade policy with incompletely informed policymakers," Journal of International Economics, Elsevier, vol. 42(1-2), pages 33-65, February.
    3. Young-Han Kim, 1999. "The Welfare Analysis of Trade Policies: The Optimal Government Intervention Timing under Incomplete Information," International Economic Journal, Taylor & Francis Journals, vol. 13(4), pages 53-70.
    4. Karp, Larry S. & Perloff, Jeffrey M., 1995. "The failure of strategic industrial policies due to manipulation by firms," International Review of Economics & Finance, Elsevier, vol. 4(1), pages 1-16.
    5. Neary, J Peter & Leahy, Dermot, 2000. "Strategic Trade and Industrial Policy towards Dynamic Oligopolies," Economic Journal, Royal Economic Society, vol. 110(463), pages 484-508, April.
    6. Perloff, Jeffrey M, 1991. "Econometric analysis of imperfect competition and implications for trade research," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt46w1j22d, Department of Agricultural & Resource Economics, UC Berkeley.
    7. Tsuyoshi Toshimitsu, 1997. "Optimal Export Policy In The Presence Of R&D Investment," Discussion Paper Series 17, School of Economics, Kwansei Gakuin University, revised Sep 1997.
    8. Karp, Larry & Perloff, Jeffrey M, 1993. "The Failure of Strategic Industrial Policies Due to the Manipulation by Firms," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt2tf2n8fq, Department of Agricultural & Resource Economics, UC Berkeley.
    9. Kresimir Zigic, 2001. "Strategic Trade Policy, the "Committed" versus "Non-Committed" Government, and R&D Spillovers," CERGE-EI Working Papers wp177, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    10. Walsh, Patrick, 1991. "A general framework for analysing endogenous trade divergences," LSE Research Online Documents on Economics 6780, London School of Economics and Political Science, LSE Library.
    11. Hadhri, Moncef, 1997. "A model of interdependence between Japanese and EC Industries: Applied general equilibrium evaluation with imperfect competition," Journal of Policy Modeling, Elsevier, vol. 19(5), pages 537-565, October.

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