Export Subsidies and Timing of Decision-Making —An Extension to the Sequential-Move Game of Brander and Spencer (1985) Model—

This paper examines how the timing of decision-making affects strategic trade policy. In this paper, we analyze the relationship between the different timing of decision-making by exporting firms and their subsidizing governments and its impact on export subsidy. The paper aims to extend the analysis of Brander and Spencer (1985) to include the Stackelberg competition and the sequential-move decision on the subsidy choice by governments. Some main results are presented as follows: First, when governments decide simultaneously the ex-port subsidies in advance under the following Stackelberg quantity competition, the original leader firm produces as if it was the follower. Different from the Cournot model, under the Stackelberg model, the subsidy policy by the government that can subsidize the leader firm does not work effectively. Second, under the sequential-move game in which the government that can subsidize the leader firm decides its subsidy level first, the profit of the leader firm is less than that of the follower in the Stackelberg model, although the first-mover advantage of the government is maintained. The result proves that the timing of decision-making affects the results of the export subsidy policy significantly. JEL classification: D43; F12; L1