This paper develops a model in which foreign and domestic manufacturers producing differentiated goods sell through spatially differentiated retailers. There is free entry into retailing but access to the retail distribution network (entry into manufacturing) is controlled. We compare the use of tariffs on imports and direct controls of foreign manufacturing entry as means of increasing domestic welfare. It is shown that, in one special case of the model, foreign entry is always welfare-improving when tariffs can be used. When trade policy is not available, however, a little entry is welfare-reducing whereas a lot of entry is welfare-improving; it is noted that this property holds in other settings. Finally, simulations of the full model show that foreign entry may always be welfare-improving even with no tariffs, through its effects on the retail equilibrium. In particular, by increasing the range of products available it brings more consumers into the market and so makes retailing more profitable. This stimulates entry into retailing thus reducing the transport costs faced by consumers. We also discuss the choice of tariff in this setting and note that it increases with domestic entry. As the number of domestic firms increases, ceteris paribus, overall profits are declining but the domestic share is increasing as the foreign share declines. Accordingly, the profit-shifting role of a tariff is increasingly significant as its consequences for consumer prices declines.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number
97-23.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)