Tariffs, market conduct and government commitment (original) (raw)
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SSRN Electronic Journal, 2005
We analyze a simple "tariffs cum foreign competition" policy targeted at enhancing the competitive position of a domestic, developing country firm that competes with its developed country counterpart on the domestic market and that carries out an innovative (imitative) effort. We evaluate this policy with respect to social welfare, type of oligopoly conduct, information requirement, time consistency, possibility of manipulative behavior and conclude that the most robust policy setup is that in which the domestic government is unable to precommit to the level of its policy. Finally, we examine this policy, allowing for asymmetric information, and show that the corresponding social welfare may be higher than under perfect information setup. Abstrakt Analyzujeme dopady jednoduché politiky "cel a zahraniční konkurence", zaměřené na podporu konkurenceschopnosti domácích firem sídlících v rozvojové zemi. Domácí firmy inovují (resp.imitují) a utkávají se na místním trhu s podniky z vyspělých zemí. Účinnost uvažovaných opatření je hodnocena vzhledem k společenskému blahobytu, charakteru oligopolního chování, informační náročnosti, časové konzistenci a možnosti manipulativního chování. Jako nejrobustnější se jeví opatření, při kterém se místní vláda nemůže předem pevně zavázat ke konkrétním krokům. Poté zkoumáme tuto politiku v prostředí asymetrické informace. Závěrem konstatujeme, že v případě asymetrické informace může být společenský blahobyt vyšší než v prostředí symetrické informace.
A Comprehensive Empirical Analysis of Trade Policy with Monopolistic Competition in a Small Country
To evaluate protectionism, we propose a comparative advantages model based on monopolistic competition with an endogenous markup, which enables the identification of three policy effects: international competition, productive and allocative efficiency, besides a non-cost competition term. Evidence is based on Brazil's import substitution industrialization, and the foreign economy is a set of (integrated) developed countries, which amplifies both the accuracy to comparative advantages and the access to fixed costs (economies of scale). Only the period under protection is considered, so that some comparative static analyzes draw on counterfactuals.
International Trade Policy Towards Monopolies and Oligopolies
International Trade, 2003
We study the effect of market structure upon international trade policy when firms invest in process R&D before competing in a differentiated goods market. For a domestic monopoly, and increasing the number of foreign firms, the government either chooses a R&D (and output) subsidy, ...
Domestic trade protection in vertically-related markets
Economic Modelling, 2011
We consider trade policy in a setting where home country firms are fully dependent on vertically-integrated foreign firms for supplies of a key input. We find that vertically-integrated firms' strategic considerations play an important role and that, in particular, a tariff on final goods may either increase or decrease the domestic price of final goods. The import of final goods is always taxed to extract and shift rents from foreign firms, while the import of intermediate goods can be either taxed or subsidized. The market structure is shown to be an important consideration when making trade policy.
Welfare-maximizing and revenue-maximizing tariffs with a few domestic firms
Canadian Journal of Economics/Revue Canadienne d`Economique, 2002
In this paper we compare the orthodox optimal tariff formula with the appropriate welfare-maximizing tariff when there are a few producing or importing firms. The welfaremaximizing tariff can be very low, voire negative in some cases, while in others it can even exceed the maximum-revenue tariff. The relationship between the welfare-maximizing tariff and the number of firms need not be monotonically increasing, because the tariff is not strictly used to internalize terms of trade externality. It is also used to manipulate cost asymmetries between producing and importing firms. Welfare-maximizing specific tariffs are never worse than their ad valorem counterparts. JEL Classification F13, L13
Bidding for tariff exemptions in international oligopolies
International Tax and Public Finance, 2020
An advice IMF often gives to its members that open up their markets to trade is to reduce the level of tariffs and to simultaneously increase consumption taxes so as not to lose government revenues. In this paper, we introduce a novel way of reducing tariff rates without losing revenues and without relying on consumption taxes. We propose that the home government imposes a per unit (or ad valorem) tariff and also auctions off a number of tariff exemptions. The foreign firms that submit the highest bids acquire the exemptions and sell their products in the home market without paying. The remaining foreign firms, i.e., those who do not acquire exemptions, remain subject to it. We identify market conditions under which this mechanism generates higher revenues for the home government (in comparison with traditional tariff policies) and also higher total home welfare. Among other things, our analysis implies that if the government wants to collect revenues of magnitude T() , it can do so by announcing a lower tariff rate ′ < and by inviting the foreign firms to bid for tariff exemptions.
Heterogeneous responses of firms to trade protection
Journal of International Economics, 2008
This paper uses firm-level panel data to estimate the effect of import protection on the productivity of domestic firms in import-competing industries. The type of import protection we study is antidumping protection (AD). Two key results emerge from our analysis. First, while the productivity of the average firm is moderately improved during AD protection, the productivity of firms in protected sectors remains below that of domestic firms never involved in AD cases, which questions the desirability of protection. Second, when we introduce firm heterogeneity we find that domestic firms with relatively low initial productivity -laggard firms -have productivity gains during AD protection, while firms with high initial productivity -frontier firmsexperience productivity losses. Our empirical results are consistent with recent theoretical work supporting the view that trade policy can have a differential effect on firms depending on their initial productivity.
The role of commitment and the choice of trade policy instruments
The incentives for governments to impose subsidies and tariffs on R&D and output is analyzed in a differentiated good industry where firms invest in a cost saving technology. When government commitment is credible, subsidies to R&D and output are positive both under Bertrand and Cournot competition. In the absence of government commitment the policy instrument is a tariff under Bertrand, and a subsidy under Cournot, competition. However, welfare under free trade is always greater than imposing a tariff unilaterally, or bilaterally, and hence non-committal under price competition is never an equilibrium. If a government has to choose either a subsidy on R&D (or on output) then, independent of price or quantity competition, it subsidies R&D for low levels of product substitutability and output for higher levels of substitutability.
Foreign Monopolies and Tariff Agreements under Integrated Markets
SSRN Electronic Journal, 2005
In this paper the optimal policy and the stability of a tariff agreement among the importers of a monopolized good that is sold in an integrated market are studied. To analyze the stability, the tariff agreement formation is modelled as a two-stage game. In the first stage each importer decides whether or not to sign the agreement and in the second stage the signatories and non-signatories choose their tariff whereas the monopoly chooses the quantity or the price. The findings show that the optimal policy of the importers depends on which strategic variable is selected by the monopolist but that, on the contrary, this decision has no effects on the level of cooperation that can be reached by a selfenforcing tariff agreement that, in any case, is very low.