An Experimental Test of Strategic Trade Policy

Dirk Engelmann and Hans-Theo Normann

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: In this experiment, we analyze the model of strategic trade policy proposed by Brander and Spencer (1985). Governments can choose whether or not to subsidize domestic firms. Firms compete in a Cournot duopoly, and they know the subsidy decisions when choosing output. Although the theoretical prediction is that firms are subsidized, it turns out that governments only rarely subsidize in experimental markets. Not subsidizing is rational given our observation that firms do not play according to the subgame perfect equilibrium when subsidies are given.

Keywords: Commercial policy; experimental economics; strategic commitment (search for similar items in EconPapers)
JEL-codes: C92 F13 L13 (search for similar items in EconPapers)
Date: 2003-06
New Economics Papers: this item is included in nep-exp and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: An experimental test of strategic trade policy (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp212

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