Abstract
ABSTRACTThis paper analyses how strategic export policies are affected by introducing an imperfectly competitive intermediate good into a Bertrand duopoly model with product differentiation, where a home and a foreign final‐good firm export to a third‐country market. It is shown that when the home and foreign markets for the intermediate good are segmented, the optimal export policy towards the final good is a tax. In contrast, under integrated markets, the optimal export intervention is a subsidy. Whether bilateral export intervention is welfare improving compared with free trade, depends on the degree of product differentiation between the home and foreign final goods.
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