Abstract
Export subsidies in differentiated product markets are examined in a framework where the decision to establish subsidy programs occurs first, but firms set prices before governments set subsidy levels. In contrast to earlier results that governments should tax the exports of Bertrand firms when subsidy levels are set before prices, positive subsidies can be optimal. Adoption of a subsidy program by one producer's government does not necessarily hurt the unsubsidized competitor. The subsidy itself hurts, but the program facilitates collusion. The results highlight the importance of timing and the distinction between the effects of policy regimes and policy instruments.
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