Abstract
The authors study strategic trade policy in the framework of an explicit dynamic game in which home and foreign duopolists compete in a third-country market for non-competitive rents. Dynamics are introduced on the demand side by assuming demand for the product depends on past consumption of that good. The analysis demonstrates that the perfect equilibrium of the dynamic game can be replicated by a conjectural variations equilibrium, and that optimal policy requires a tax on exports.
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We would like to thank two anonymous referees for valuable comments on an earlier version of this paper.
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Driskill, R., McCafferty, S. Industrial policy and duopolistic trade with dynamic demand. Review of Industrial Organization 11, 355–373 (1996). https://doi.org/10.1007/BF00414404
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DOI: https://doi.org/10.1007/BF00414404