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Endogenous strategic trade policy: The case of the third market model

Shoou-Rong Tsai, Pan-Long Tsai and Yungho Weng

International Review of Economics & Finance, 2018, vol. 58, issue C, 676-682

Abstract: Using simple linear demand functions, we have shown that in the thircd market strategic trade policy model there cannot be Cournot-Bertrand or Bertrand-Cournot competition in equilibrium if the two firms choose strategic variables endogenously. More importantly, knowing that the firms will react to its policy in choosing their strategic variables, the government can indeed provide export subsidies to the home firm to maximize the home social welfare if some moderate, reasonable constraints are satisfied.

Keywords: Strategic trade policy; Endogenous strategic variable; Brander-Spencer model (search for similar items in EconPapers)
JEL-codes: F12 F13 L13 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:reveco:v:58:y:2018:i:c:p:676-682