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Strategic trade policy focuses primarily on trade policy in the presence of oligopoly. This policy is defined as trade policy that alters a strategic relationship between firms. This definition implies that the existence of a strategic relationship between firms is a necessary precondition for the application of strategic trade policy.
In this term, domestic government may undertake some trade policy intervention. If it intervenes, it changes the payoffs to the firms arising from the various possible combinations of actions by the firms. Introducing or increasing an export subsidy to the domestic firms causes the output and profit of the domestic firm to rise and output and profit of the foreign firms to fall.
In this paper, I show some interesting results as follows: First, It is shown that when the governments decided to subsidize firms in the cournot competition, it increases both firms' output and export. Second, in the cournot competition, when each firm has identical cost, the welfares under the bilateral intervention are smaller than under no intervention. Third, in the cournot competition, when each firm has identical cost, the welfare under the unilateral intervention is bigger than under no intervention. Forth, if the rival government choose intervention policy, national government has to interven to prevent a decrease in export and the market share of internal firms.
JEL Classification: D43, F12, L13