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April 16, 2026Foreign Trade Review

Optimal Export Policy Under Perfectly Complementary Intermediate Goods: Revisiting Brander– Spencer and Eaton–Grossman

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Authors

CCC C ChenChaoyang University of Technology

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Implication

Revisits optimal export policies in trade, showing subsidies maximize welfare despite competition modes.

Key Points

  • This research aims to determine the optimal export policy when intermediate goods are perfectly complementary.
  • Developed a three-country model with two producers of intermediate goods and two exporters of final goods.
  • Utilized a three-stage game framework to analyze the effects under different competition modes.
  • Compared Cournot quantity competition, Bertrand price competition, and conjectural variations.
  • An export subsidy on final goods is the welfare-maximizing policy regardless of competition mode.
  • Findings contrast Eaton and Grossman's previous recommendations of export taxes and free trade.
  • Emphasizes the importance of the configuration of intermediate inputs in shaping trade policy.

Cite This Study

C C Chen (2026) studied this question.

synapsesocial.com/papers/69e07d3c2f7e8953b7cbe382https://doi.org/10.1177/00157325261437462
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