In this paper, we build and analyze a model of strategic trade policy in which domestic and foreign companies are engaged in Cournot competition in a third country market, based on consumer goods that have endogenous durability. It drew the following results that differ from previous studies. Firstly, neither domestic nor foreign companies conduct production in the first phase. Secondly, an increase in the subsidies provided by their own government leads to a decrease in the durability of their own country’s consumer goods. Even if subsidies by foreign governments change, this will not affect the durability of their own country’s consumer goods. Thirdly, the subsidies by their own government increase or decrease economic welfare depending on the parameters.
View full abstract