The Second-Mover Advantage in International Trade Negotiations

Dluhosch Barbara ()
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Dluhosch Barbara: Helmut Schmidt University - University FAF Hamburg

Global Economy Journal, 2010, vol. 10, issue 1, 37

Abstract: The paper explores incentives of national trade representatives (TRs) in international negotiations when trade policy basically follows a non-cooperative track with countries imposing tariffs on each other's exports due to "terms of trade cum international political economy" considerations. The paper shows that negotiations might get stuck even if a limited form of mutual trade liberalization Pareto-dominates the initial Nash-equilibrium in trade policies. The dilemma is rooted in a second-mover advantage, which adds considerable inertia to the Nash equilibrium of protectionism. The second-mover advantage arises whenever the countries' tariffs are strategic complements, with the latter, in turn, conditional on the traded goods being complements in final demand.

Keywords: trade policy; international negotiations; political economy (search for similar items in EconPapers)
Date: 2010
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DOI: 10.2202/1524-5861.1528

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