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actions asymmetric benchmark Bertrand competition central bank CEPR cost-reducing investment Cournot competition derivatives Discussion Papers European Central Bank European Commission example export subsidies firm's profits firms choose firms compete first-order condition foreign firms respectively foreign investment raises friendliness and strategic functional forms Hence higher foreign investment home and foreign home firm investment decisions investment levels investment reaction function investment subsidy remains investments are friendly investments are strategic levels are strategic levels are unfriendly Macroeconomics marginal cost marginal profitability market period market-expanding investment monetary policy Nash equilibrium Neary and Leahy negative optimal industrial policy optimal investment subsidy output plausible positive investment subsidy pre-market period profitability of foreign raises home profits return to investment rise in home second-order condition Spencer and Brander strategic complements strategic effect strategic substitutability term strategic trade policy subscription subsidies to investment subsidy is optimal subsidy remains optimal University College Dublin welfare World Trade Organisation