Choice of trade policy for international oligopoly with incomplete information

Abstract

This paper studies the design of trade policies in an uncertain third market with incomplete information. Governments in each of the two countries select either direct quantity controls or export subsidies in an attempt to shift profits in favor of their firms in an international oligopolistic setting. It is shown that the country with firms having an information disadvantage tends to choose direct quantity control, while the country with well-informed firms would use export subsidy (export quota, respectively) when the degree of uncertainty is sufficiently high (low, respectively).