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Uncertainty Resolution and Strategic Trade Policy in Oligopolistic Industries
Author(s) -
Caglayan Mustafa
Publication year - 2000
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00223
Subject(s) - cournot competition , economics , oligopoly , subsidy , microeconomics , government (linguistics) , commercial policy , competition (biology) , imperfect competition , duopoly , industrial organization , international economics , market economy , ecology , linguistics , philosophy , biology
This paper investigates a government’s choice of strategic trade policy when the domestic firm observes a private noisy signal about the stochastic market demand while in competition with a rival firm. The government chooses between quantity controls and subsidies to maximize profits of the domestic firm. Assuming that firms compete à la Cournot in a third country, it is shown that the optimal trade policy depends not only on demand uncertainty but also on the predictability of the true market demand by the firms.