On Assisting Domestic Industries Under Bertrand Competition

6 Pages Posted: 21 Aug 2004

See all articles by Dominik Egli

Dominik Egli

University of Bern - Institute of Economics

Frank Westermann

University of Osnabrueck - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Abstract

In a homogeneous-good duopoly game with a home and a foreign firm, which compete on prices, it has been shown that the optimal way to assist the domestic industry is by a production subsidy. The argument here is that the subsidy is used to keep potential competitive pressure on the foreign firm. This paper analyzes under which conditions this threat of entry of a subsidized home firm is credible. It is shown that in markets where the firms move before the government, a subsidy is not credible and dominated by a tariff in terms of welfare.

Suggested Citation

Egli, Dominik and Westermann, Frank, On Assisting Domestic Industries Under Bertrand Competition. Review of International Economics, Vol. 12, No. 3, pp. 435-440, August 2004. Available at SSRN: https://ssrn.com/abstract=573072

Dominik Egli (Contact Author)

University of Bern - Institute of Economics

Gesellschaftstrasse 49
Bern, CH-3012
Switzerland

Frank Westermann

University of Osnabrueck - Department of Economics ( email )

Rolandstr. 8
Osnabrueck, D-49069
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
21
Abstract Views
635
PlumX Metrics