Abstract :
A standard result in export subsidy/tax game models is that if governments can credibly precommit themselves to a particular trade policy, an export subsidy (tax) is optimal when firms engage in quantity (price, respectively) competition (Brander and Spencer, 1985 and Eaton and Grossman, 1986). In this paper, we consider a model of dynamic duopoly when demand in the importing country is uncertain. We show that in a symmetric equilibrium a subsidy is generally optimal for price competition
