Strategic trade policy and non-linear subsidy: in the case of price competition

Yoshino Hisao

No 287, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: In a strategic trade policy, it is assumed, in this paper, that a government changes disbursement or levy method so that the reaction function of home firm approaches infinitely close to that of foreign firm. In the framework of Bertrand-Nash equilibrium, Eaton and Grossman[1986] showed that export tax is preferable to export subsidy. In this paper, it is shown that export subsidy is preferable to export tax in some cases in the framework of Bertrand-Nash equilibrium, considering the uncertainty in demand. Historically, many economists mentioned non-linear subsidy or tax. However, optimum solution of it has not yet been shown. The optimum solution is shown in this paper.

Keywords: Trade policy; Exports; Taxation; Strategic trade policy; Non-linear subsidy; Bertrand-Nash equilibrium; Stackelberg equilibrium (search for similar items in EconPapers)
JEL-codes: C72 F12 F13 L52 (search for similar items in EconPapers)
Date: 2011-03-01
New Economics Papers: this item is included in nep-int
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 287. 2011-03-01

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