Optimal Export Policy for a New Product Monopoly: Comment
Cross Cultural Management: An International Journal, Vol. 6, No. 2, 1999
4 Pages Posted: 11 Jul 2011
A comment on Bagwell's proposition that export subsidies are welfare enhancing under certain conditions.
Bagwell (1991) seeks to defend the proposition that export subsidies are welfare enhancing under certain conditions. As implied by the title of his paper, he limits his argument to those cases where one, there is a monopoly, and two, a new product is being introduced.
Why should this be so? This is because foreign consumers may be unaware of the products quality (1156), and they will judge its quality by the price demanded. Therefore, a firm in possession of a high-quality product may need to distort its price, lest consumers mistakenly infer that the products quality is low (1156). The export subsidy, presumably, will enable this firm to overcome this need, holding fast to a lower non distorted price.
There are many difficulties with this claim.
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