| Abstract : | Trade policy refers to any governmental policy affecting international trade, including import tariffs, export subsidies and quotas. Such policies aim to improve the competitive position of the country in question in the world market and thus to maximize some measure of its national economic welfare. In particular, due to the susceptible of various interpretations of the term “strategic trade policy” the definition provided by Brander (1995) is quoted: “strategic trade policy is defined to be trade policy that conditions or alters a strategic relationship between firms”. The term strategic relationship implies mutually observable strategic interdependence between the firms. In other words, any firm’s profits must depend on its rivals’ strategic choices and this connection must be recognizable and understood by the firms themselves. It is clear by the definition of strategic trade policy given above, that it can only arise under imperfect competition and therefore it is reasonable to focus mainly on the cases of oligopoly, monopoly and monopolistic competition, arising from differentiated products. Two oligopolistic exporters can either compete in a third market or on their own. The primary implications that an oligopoly causes to the design of trade policy are that economic profits are not set to zero and that a price equal to marginal cost is not generally the case. These give rise to beneficial governmental policies that shift the industry equilibrium to the advantage of domestic firms and increase national welfare. Also, strategic trade policy may be meaningful in the case of a monopoly especially when threatened by potential entrants. Strategic trade policy is based on game theory and particularly on non-cooperative game structures. Several parameters of a game, such as information asymmetry, whether the game is static or dynamic, repetitive or not and simultaneity of firms’ movements have a major significance in the outcome. Any slight change in the terms of a game may cause strikingly different results. In the case of strategic trade policy a determinant parameter is commitment. If a government or a firm can pre-commit to a certain action and this commitment is credible, understandable and recognizable by its rivals, then it can alter the terms of the game. In fact, strategic trade policies often require some degree of pre-commitment. Before continuing, it is necessary to give the definition of Nash equilibrium. Nash equilibrium is any combination of players’ strategies, in which no player has a unilateral incentive to deviate. In other words, Nash equilibrium arises when all players choose strategies so that each player’s strategy maximizes his payoff (profit), given the strategies of the other players.
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