IDEAS home Printed from https://ideas.repec.org/p/ucn/wpaper/199008.html
   My bibliography  Save this paper

Cost asymmetries in international subsidy games : should governments help winners or losers?

Author

Listed:
  • J. Peter Neary

Abstract

This paper examines the optimality of export subsidies in oligopolistic markets, when home and foreign firms have different costs and there is an opportunity cost to public funds. Subsidies are found to be optimal only for surprisingly low values of the shadow price of government funds, and if subsidies are justified they should be higher the more cost-competitive are domestic firms. These results hold under both Cournot competition and Bertrand competition when firms move before governments. The results suggest that recent arguments for export subsidies apply only for firms that would be highly profitable even without subsidies.

Suggested Citation

  • J. Peter Neary, 1990. "Cost asymmetries in international subsidy games : should governments help winners or losers?," Working Papers 199008, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:199008
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10197/1477
    File Function: First version, 1990
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Brander, James A. & Spencer, Barbara J., 1988. "Unionized oligopoly and international trade policy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 217-234, May.
    2. Baldwin, Robert E, 1969. "The Case against Infant-Industry Tariff Protection," Journal of Political Economy, University of Chicago Press, vol. 77(3), pages 295-305, May/June.
    3. Browning, Edgar K, 1987. "On the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 77(1), pages 11-23, March.
    4. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
    5. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    6. 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.
    7. Markusen, James R. & Venables, Anthony J., 1988. "Trade policy with increasing returns and imperfect competition : Contradictory results from competing assumptions," Journal of International Economics, Elsevier, vol. 24(3-4), pages 299-316, May.
    8. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
    9. Gruenspecht, Howard K., 1988. "Export subsidies for differentiated products," Journal of International Economics, Elsevier, vol. 24(3-4), pages 331-344, May.
    10. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    11. David de Meza, 1986. "Export Subsidies and High Productivity: Cause or Effect?," Canadian Journal of Economics, Canadian Economics Association, vol. 19(2), pages 347-350, May.
    12. Horstmann, Ignatius J. & Markusen, James R., 1986. "Up the average cost curve: Inefficient entry and the new protectionism," Journal of International Economics, Elsevier, vol. 20(3-4), pages 225-247, May.
    13. Cheng, Leonard K, 1988. "Assisting Domestic Industries under International Oligopoly: The Relevance of the Nature of Competition to Optimal Policies," American Economic Review, American Economic Association, vol. 78(4), pages 746-758, September.
    14. Dixit, Avinash K & Kyle, Albert S, 1985. "The Use of Protection and Subsidies for Entry Promotion and Deterrence," American Economic Review, American Economic Association, vol. 75(1), pages 139-152, March.
    15. J. Peter Neary, 1988. "Export subsidies and national welfare," Working Papers 198809, School of Economics, University College Dublin.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455, Elsevier.
    2. 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.
    3. Bhattacharjea, Aditya, 1995. "Strategic tariffs and endogenous market structures: Trade and industrial policies under imperfect competition," Journal of Development Economics, Elsevier, vol. 47(2), pages 287-312, August.
    4. Reimer, Jeffrey J. & Stiegert, Kyle W., 2006. "Evidence on Imperfect Competition and Strategic Trade Theory," Staff Paper Series 498, University of Wisconsin, Agricultural and Applied Economics.
    5. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
    6. Choi, Kangsik & Lee, Ki-Dong & Lim, Seonyoung, 2016. "Strategic Trade Policies In International Rivalry When Competition Mode Is Endogenous," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 57(2), pages 223-241, December.
    7. Kohler, Philippe & O. Moore, Michael, 2003. "Domestic Welfare Effects of Foreign Strategic Trade Policies," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 18, pages 573-586.
    8. Colacicco, Rudy, 2012. "Strategic Trade Policy in General Oligopolistic Equilibrium," MPRA Paper 38118, University Library of Munich, Germany.
    9. Carolyn Fischer, 2016. "Strategic Subsidies for Green Goods," Working Papers 2016.30, Fondazione Eni Enrico Mattei.
    10. Lim, Seonyoung & Choi, Kangsik, 2014. "Strategic Subsidy Policies with Endogenous Choice of Competition Mode," MPRA Paper 59462, University Library of Munich, Germany.
    11. Keith Head & Barbara J. Spencer, 2017. "Oligopoly in international trade: Rise, fall and resurgence," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1414-1444, December.
    12. Thorsten Bayındır‐Upmann, 2003. "Strategic Environmental Policy under Free Entry of Firms," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 379-396, May.
    13. Yoon, Jeong & Choi, Kangsik, 2018. "Why do export subsidies still exist? R&D and output subsidies," Japan and the World Economy, Elsevier, vol. 45(C), pages 30-38.
    14. Federico Etro, 2014. "Optimal Trade Policy under Endogenous Foreign Entry," The Economic Record, The Economic Society of Australia, vol. 90(290), pages 282-300, September.
    15. Park, Chongkook, 1990. "Three essays on strategic trade policy: precommitment, time consistency, and effects of a ratio quota," ISU General Staff Papers 1990010108000010878, Iowa State University, Department of Economics.
    16. Fujimoto, Hiroaki & Park, Eun-Soo, 1997. "Optimal export subsidy when demand is uncertain," Economics Letters, Elsevier, vol. 55(3), pages 383-390, September.
    17. 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.
    18. 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.
    19. Hong Hwang & Chao‐cheng Mai, 1999. "Optimal Export Taxes with an Endogenous Location," Southern Economic Journal, John Wiley & Sons, vol. 65(4), pages 940-952, April.
    20. Kresimir Zigic, 2011. "Strategic Interactions in Markets with Innovative Activity: The Cases of Strategic Trade Policy and Market Leadership," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b06, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucn:wpaper:199008. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/educdie.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nicolas Clifton (email available below). General contact details of provider: https://edirc.repec.org/data/educdie.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.