Rivalry between Exporting Countries and an Importing Country under in complete Information

This paper extends the Brander-Spencer (1985) framework to examine the noncooperative Nash equilibrium of export subsidy policy under incomplete information when the firms’ costs are unknown to the exporting and importing countries. With the assumptions of linear demand and two types of a firm s cost, the non-cooperative Nash equilibrium is that both exporting countries use a single pooling export subsidy (tax) under a uniform (discriminatory) tariff regime. Moreover, we find that the importing country would optimally choose a uniform tariff regime. However, both exporting countries prefer a discriminatory tariff regime as long as the expected cost differential between the two firms is small enough.