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Incompletely Informed Policymakers and Trade Policy in Oligopolistic Industries

Author

Listed:
  • 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.

Suggested Citation

  • Mustafa Caglayan & Murat Usman, 2003. "Incompletely Informed Policymakers and Trade Policy in Oligopolistic Industries," Working Papers 2003_06, University of Liverpool, Department of Economics.
  • Handle: RePEc:liv:livedp:2003_06
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    File URL: http://www.liv.ac.uk/Economics/livdp/wp0306.pdf
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    References listed on IDEAS

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    Cited by:

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    2. Matloob Piracha, 2004. "Export Subsidies and Countervailing Duties Under Asymmetric Information," Studies in Economics 0410, School of Economics, University of Kent.

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    More about this item

    Keywords

    Trade Policy; Incomplete Information; Oligopoly;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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