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Tariff Revenue Competition in a Free Trade Area: The Case of Asymmetric Large Countries

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Author Info
Taiji Furusawa
Naoto Jinji
Abstract

The striking result has been shown by Richardson that tariff revenue competition between two symmetric member countries of a free trade area (FTA) results in complete elimination of external tariffs if there exists a pure-strategy Nash equilibrium at all. Richardson also conjectures without building a model that if member countries are asymmetric in market size, there exists a pure-strategy Nash equilibrium in which both countries set positive external tariffs. We explicitly extend his tariff competition model into the case of asymmetric FTA member countries, and confirm his conjecture. We also show that there exists a mixed-strategy Nash equilibrium in the case of symmetric countries. Copyright © 2007 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9361.2007.00402.x
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Article provided by Blackwell Publishing in its journal Review of Development Economics.

Volume (Year): 11 (2007)
Issue (Month): 2 (05)
Pages: 300-312
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Handle: RePEc:bla:rdevec:v:11:y:2007:i:2:p:300-312

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