Export subsidies and price competition

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Title: Export subsidies and price competition
Authors: Neary, J. Peter
Permanent link: http://hdl.handle.net/10197/1459
Date: Apr-1989
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.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Subject LCSH: Export subsidies
Export duties
Competition
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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