Konrad, Kai A.
In: Journal of International Economics, Vol. 51, No. 2: pp. 317-334
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In this paper a new benchmark case for describing international trade is analysed: trade transactions as the outcome of contests between rival exporting firms. Contests between firms trigger non-cooperative strategic trade policies by countries. In the non-cooperative subgame perfect equilibrium, one country subsidizes its domestic firm, the other country chooses an export tax. Both exporting countries are better off than in the equilibrium without strategic trade policy. (C) 2000 Elsevier Science B.V. All rights reserved.