Journal of International Economics 61(2003)247-248

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R eply

LarryD.Qiu*

HongKongUniversityofScienceandTechnology,DepartmentofEconomics,ClearWaterBay,Kowloon,HongKong,China

Received27June2002;accepted12July2002

OkajimaiscorrectinarguingthatthereexistsnoseparatingequilibriuminthecaseofBertrandcompetitionconsideredbyQiu(1994).AlthoughtheconclusionstatedinProposition3byQiu(1994)remainsunchanged,thestructureandanalysisofSection4inQiu(1994)shouldbereorganizedasfollows.

First,considerthenecessaryandsufficientconditionforaseparation-inducingmenu.FollowingOkajima’sanalysis,wecanestablisharesultsimilartoLemma2byQiu(1994):

Lemma3.Thenecessaryandsufficientconditionforamenutoinduceseparationis

g2(cH2cL)

].sL2sH$]]]2(2b22g2)

Then,considertheoptimaltaxes(sL,sH)byignoringtheincentive-compatibilityconstraint(i.e.,theinequalityinLemma3).Wefindthat

g222s*i5L,H.i52]]]]222][a(2b1g)2(2b2g)ci],

4b(2b2g)

Thus,sL,sH,thatis,undercompleteinformationthegovernmentimposesahigherexporttaxonthelowercostfirm.ThisviolatesLemma3,however.Therefore,itisoptimalforthegovernmenttoimposeauniformexporttaxonthe

*Tel.:1852-2358-7628;fax:1852-2358-2084.E-mailaddress:larryqiu@ust.hk(L.D.Qiu).

0022-1996/02/$–seefrontmatter 2002 Elsevier B.V. All rights reserved.doi:10.1016/S0022-1996(02)00082-X

248L.D.Qiu/JournalofInternationalEconomics61 (2003) 247–248firm,whetherthefirmishigh-costorlow-cost.1Consequently,weneedonlytoconsidertheuniformpolicy,orapoolingequilibrium.Hence,togetherwiththeanalysiscontainedinthefirsthalfofSection4inQiu(1994),wemodifyProposition3asfollows.

Proposition3.Inthetwo-stagesequentialgamewithasymmetricinformationandBertrandcompetition,itisoptimaltochooseauniformpolicy.Theresultisapoolingequilibrium.R eferences

Cheng,L.K.,Qiu,L.D.,Wong,K.P.,2001.Anti-dumpingmeasuresasatoolofprotectionism:amechanismdesignapproach.CanadianJournalofEconomics34(3),639–660.

Guesnerie,R.,Laffont,J.J.,1984.Acompletesolutiontoaclassofprincipal-agentproblemswithanapplicationtothecontrolofaself-managedfirm.JournalofPublicEconomics34,329–369.

Qiu,L.D.,1994.Optimalstrategictradepolicyunderasymmetricinformation.JournalofInternationalEconomics36,333–354.

ThisfollowsGuesnerieandLaffont(1984;Theorem4).Chengetal.(2001)alsousethisapproachtoderiveoptimalanti-dumpingdutiesinthemodelwithincompleteinformation.

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