Question
According to Perloff (2014), a national government subsidy to a firm that participates in an international market can convert the market structure from a Cournot
According to Perloff (2014), a national government subsidy to a firm that participates in an international market can convert the market structure from a Cournot type to a Stackelberg type. For this to occur, it is important that (select all that apply):
Reference: Perloff, J. (2014). Microeconomics. 6th Edition. Chapter 13: Oligopolistic and Monopolistic Competition. Pearson. (An electronic copy of this book chapter is available in the unit Reading List, which can be found on the right panel of the unit Blackboard site).
a. | The government should verify that all firms behave as price-setters. | |
b. | The firm that receives the subsidy must commit to being a leader, i.e. it must be willing to sacrifice profit to eliminate competition. | |
c. | Other national governments should not provide subsidies to other firms, otherwise the market would become a Cournot game between governments. | |
d. | The government should verify that all firms behave as quantity-setters. | |
e. | The government's subsidy support action must be credible, i.e. they should not retaliate, otherwise competitors will choose the Cournot supply level. |
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