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Trade Warfare: Tariffs and Cartels

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Author Info
James A. Brander
Barbara J. Spencer

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1193.

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Date of creation: Aug 1983
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Handle: RePEc:nbr:nberwo:1193

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