Trade and Protection in Vertically Related Markets
AbstractA domestic firm is partially dependent on a foreign vertically integrated supplier for a key intermediate product when both firms are Cournot competitors in the market for the final product. The foreign supplier generally charges its domestic rival a price for the input that exceeds the independent monopoly level and vertical foreclosure may occur. Domestic policies applied to the vertically related products can increase domestic welfare by reducing the price and increasing the availability of imported supplies of the input. Vertical integration in the foreign supplier has significant implications for all three domestic policies considered: a tariff or subsidy on imports of both products and a domestic production subsidy. The foreign vertically integrated firm tends to reduce its price for the input in response to an import tariff on the final product, whereas a simple monopoly supplier would respond by increasing its export price. Also domestic cost conditions for the production of the input can critically affect the desirability of a tax as apposed to a subsidy on intermediate imports.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3023.
Date of creation: Jul 1989
Date of revision:
Publication status: published as Journal of International Economics, Vol. 32, pp.31-55, 1992
Note: ITI IFM
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Other versions of this item:
- Spencer, Barbara J. & Jones, Ronald W., 1992. "Trade and protection in vertically related markets," Journal of International Economics, Elsevier, Elsevier, vol. 32(1-2), pages 31-55, February.
- Jones, R.W. & Spencer, B.J., 1989. "Trade And Protection In Vertically Related Markets," RCER Working Papers 195, University of Rochester - Center for Economic Research (RCER).
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.:
- James A. Brander & Barbara J. Spencer, 1980.
"Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry,"
Working Papers, Queen's University, Department of Economics
414, Queen's University, Department of Economics.
- James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 14(3), pages 371-89, August.
- Sanyal, Kalyan K & Jones, Ronald W, 1982. "The Theory of Trade in Middle Products," American Economic Review, American Economic Association, American Economic Association, vol. 72(1), pages 16-31, March.
- Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
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