Optimum Trade Policies and Retaliation.

The present paper examines a two-country, noncooperative game in which the choice of trade policies (i.e., tariffs, quota, etc.) is consider ed as part of the overall game strategies. Using a class of constant elasticity offer curves, the author finds that the Nash-equilibrium t rade policies are those that can make the offer curves the most elast ic. When the choice set of trade policies expands, this Nash equilibr ium approaches the free trade equilibrium in the limit.