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Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry

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  • James A. Brander
  • Barbara J. Spencer

Abstract

This paper examines the incentives for using tariffs to extract monopoly rents from imperfectly competitive foreign firms. Using a simple Stackelberg entry deterrence model, the rent-extracting policy is attractive if the foreign firm faces a threat of domestic entry. Despite transportation costs, the Stackelberg leader-follower model can lead to intra-industry trade in the same commodity.

Suggested Citation

  • James A. Brander & Barbara J. Spencer, 1980. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Working Paper 414, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:414
    as

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    References listed on IDEAS

    as
    1. A. Michael Spence, 1979. "Investment Strategy and Growth in a New Market," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 1-19, Spring.
    2. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
    3. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    4. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66, pages 215-215.
    5. Lancaster, Kelvin, 1980. "Intra-industry trade under perfect monopolistic competition," Journal of International Economics, Elsevier, vol. 10(2), pages 151-175, May.
    6. Klaus Stegemann, 1982. "State Trading and Domestic Distortions in a Mixed World Economy," Palgrave Macmillan Books, in: M. M. Kostecki (ed.), State Trading in International Markets, chapter 8, pages 161-188, Palgrave Macmillan.
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