Trade Pattern and Policy Choices under Monopoly Based on Game Theory Perspective

The traditional theories are based on the premise of perfect competition.However,in the practical economy exist lots of market imperfection such as monopoly distortion,which changes trade pattern and trade policy.This paper develops a game model to analyze the optimal policy choices for home country to import intermediate inputs and export final goods to the third country in condition of monopoly distortion.The research shows that trade policy in home country should change with the demand elasticity of intermediate inputs and that export subsidy can be used as a substitute for import tariff.Meanwhile,in making trade policies,home country need combine trade policy and industrial policy with a target to maximize the domestic welfare.