Two-part trade policy in the reciprocal market model

Abstract

This paper is devoted to the study of two-part trade policy for two countries, two markets, producers under imperfect competition, where the standard arguments of free trade are not applicable. The basic model is a two-step game with complete but imperfect information. The optimal policy of the government is analyzed in terms of the goals of maximizing the national welfare. This policy dominates over a simple quota and a simple tariff, which are its special cases. At the same time, the optimal two-part trade policy of governments that maximize national wealth is a subsidy.