Strategic Trade Policy and Signalling with Unobservable Costs

Donald Wright

No 198, Working Papers from University of Sydney, School of Economics

Abstract: A two-period simultaneous signalling model is developed in which first period outputs not only signal a firm's cost to its competitor, but also signal its costs to a home country government. It is shown that the existence of second period home country strategic trade policy increases the incentives that both home and foreign high-cost firms have to misrepresent themselves as low cost. As a result, in the unique separating sequential equilibrium of this signalling game, second period strategic trade policy induces low-cost firms to distort their first period outputs more than otherwise. The major implication of this result is that the existence of second strategic trade policy can reduce welfare.

Date: 1994-04
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http://hdl.handle.net/2123/7486

Related works:
Journal Article: Strategic Trade Policy and Signalling with Unobservable Costs (1998)
Working Paper: Strategic Trade Policy and Signalling with Unobservable Costs
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Persistent link: https://EconPapers.repec.org/RePEc:syd:wpaper:2123/7486

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