Strategic Trade Policy under Uncertainty

This paper extends the Brander-Spencer (1985) model by considering market uncertainty, exploring nonlinear policy, and examining firms' choices of strategic variables. By investigating the interrelationship between trade policy and market conduct, we find that unlike the often-studied linear policy, a nonlinear policy can influence the domestic firm's choice of strategic variables and hece alter the market conduct in favor of the domestic country. Therefore, a nonlinear policy proves strictly superior to a linear one