EXPORT SUBSIDIES UNDER DYNAMIC DUOPOLY

In this paper I analyze an export subsidy game under a dynamic Cournot duopoly using a discrete-time Markov equilibrium model of dynamic Cournot duoply according to Maskin and Tirole (1987). Assuming a linear demand function, I will show that, under a dynamic duopoly, (1) firms are more sensitive to changes in export subsidies, (2) the equilibrium export subsidy in an export subsidy game is smaller, (3) the output at the subsidy equilibrium is larger, than a static duopoly. With lower subsidy and higher output, the welfare in countries under a dynamic duopoly is higher than a static duopoly.