SSE/EFI Working Paper Series in Economics and Finance
Uniform Subsidy Reductions in International Oligopoly
Abstract: This paper studies the effect of production subsidies used
as strategic instruments by two rivalling countries whose firms differ in
production efficiency. In particular, it examines the welfare effects of a
uniform subsidy reduction from the Cournot-Nash equilibrium under different
assumptions regarding technology and taste. It is found that the net
exporter (usually the efficient country) gains while the net importer
(usually the inefficient country) loses from a uniform subsidy reduction.
Results show that a non-linear demand function or marginal cost functions
with different slopes across countries is necessary to obtain an increase
in total welfare.
Keywords: Cournot oligopoly; heterogeneous countries; production subsidies; (follow links to similar papers)
JEL-Codes: D43; F12; H20; L13; (follow links to similar papers)
21 pages, December 1996
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