Export subsidies and price competition

No 198902, Working Papers from School of Economics, University College Dublin

Abstract: This paper examines optimal policy towards a home exporting firm which competes on price with a foreign firm. Two policy instruments are compared: an output subsidy and a price subsidy. The paper also considers two games: the conventional ex ante game, in which the government sets the value of the subsidy before firms set their prices, and the ex post game, where firms first set their prices in the anticipation of a subsidy by the government at the second stage. It is shown that the two types of subsidy are equivalent in the ex ante game and that a higher level of welfare can always be achieved in the ex ante than in the ex post game. This reinforces the view that optimal policy in a model characterized by Bertrand competition is an export tax rather than a subsidy.

Keywords: Export subsidies; Export duties; Competition (search for similar items in EconPapers)
Date: 1989-04
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Citations: View citations in EconPapers (9)

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http://hdl.handle.net/10197/1459 First version, 1989 (application/pdf)

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Working Paper: Export Subsidies and Price Competition (1989)
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