When cost is private information in the Brander-Spencer model, the home government is confronted by a decision of choosing between two policy options: a menu of policies and a uniform policy. The former induces separation and so reveals the cost information to the foreign competitors. The latter helps the weak firm by concealing the cost information. The main result from this study is that policy menu is preferred to uniform policy under Cournot competition while the opposite occurs under Bertrand competition.
I wish to thank Brian Copeland, Guofu Tan, and two anonymous referees for their helpful comments on earlier versions of the paper. In particular, I am very grateful to Barbara Spencer and a referee for their extremely valuable advice and help which have led to great improvements in the quality of the paper. The usual disclaimer applies.
- Strategic trade policy
- Assymmetric information