Working Paper: NBER ID: w1193
Authors: James A. Brander; Barbara J. Spencer
Abstract: National governments have incentives to intervene in international markets, particularly in encouraging export cartels and in imposing tariffs on imports from imperfectly competitive foreign firms. Although the optimal response to foreign monopoly is usually a tariff, a specific subsidy will be optimal if demand is very convex, as with constant elasticity demand. If ad valorem tariffs or subsidies are considered, a subsidy is optimal if the elasticity of demand increases as consumption increases.The critical conditions in both ad valorern and specific cases hold generally for Cournot ologopoly. Noncooperative international policy equilibrium will be characterized by export cartels and rent-extracting tariffs.
Keywords: tariffs; cartels; international trade; market power; export policy
JEL Codes: F13; F18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tariff (F13) | Domestic welfare (I38) |
| Tariff (F13) | Imports (F14) |
| Tariff (F13) | Consumer surplus (D11) |
| Demand elasticity (D12) | Optimal policy (Tariff vs Subsidy) (H21) |
| Subsidy (H20) | Consumer surplus (D11) |
| Optimal response to foreign cartelization (L12) | Demand curve curvature (D11) |
| Subsidy (H20) | Welfare improvement (I38) |