An Experimental Test of Strategic Trade Policy

CERGE-EI Working Paper No. 212

Posted: 1 Apr 2005

See all articles by Dirk Engelmann

Dirk Engelmann

University of London - Royal Holloway - Department of Economics

Hans-Theo Normann

Heinrich Heine University Dusseldorf - Department of Economics; Max Planck Institute for Research on Collective Goods

Date Written: June 2003

Abstract

In this experiment, we analyze the model of strategic trade policy proposed by Brander and Spencer (1985). Governments can choose whether or not to subsidize domestic firms. Firms compete in a Cournot duopoly, and they know the subsidy decisions when choosing output. Although the theoretical prediction is that firms are subsidized, it turns out that governments only rarely subsidize in experimental markets. Not subsidizing is rational given our observation that firms do not play according to the subgame perfect equilibrium when subsidies are given.

Keywords: Commercial policy, experimental economics, strategic commitment

JEL Classification: F13, L13, C92

Suggested Citation

Engelmann, Dirk and Normann, Hans-Theo, An Experimental Test of Strategic Trade Policy (June 2003). CERGE-EI Working Paper No. 212, Available at SSRN: https://ssrn.com/abstract=676510

Dirk Engelmann (Contact Author)

University of London - Royal Holloway - Department of Economics ( email )

Egham, TW20 0EX
United Kingdom

Hans-Theo Normann

Heinrich Heine University Dusseldorf - Department of Economics ( email )

Duesseldorf
Germany

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
737
PlumX Metrics