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Threats and Promises in Tariff Setting

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  • Taiji Furusawa

Abstract

The paper analyzes tariff-settings by two large countries, in an alternating move, infinitely repeated game. We find that there always exists a ``non-cooperative'' Markov perfect equilibrium in which countries continue to select their individual Nash tariffs. If countries are patient, however, there are also multiple ``cooperative'' Markov perfect equilibria in which countries mix their actions on their tariff space so that the resulting stochastic path indicates gradual tariff reduction with occasional retreats. In such an equilibrium, a country unilaterally lowers its tariff rate, which may be reciprocated by the other country in the future

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 635.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:635

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Keywords: Tariff setting game; alternating move;

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Cited by:
  1. Naqvi, Nadeem, 2010. "A theory of dynamic tariff and quota retaliation," MPRA Paper 27656, University Library of Munich, Germany.

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