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Product differentiation and the export subsidy dispute

In a Cournot duopoly market, this paper studies the role of product differentiation in the resolution of the export subsidy dispute. It is shown that the optimal export subsidy decreases with the degree of product differentiation and the export subsidy will be eliminated completely when the competitive goods are made perfectly different. Furthermore, increasing the degree of product differentiation will also increase the profits of the firms and the welfare of the exporting countries.