Dynamics and Discriminatory Import Policy
AbstractAlthough the General Agreement on Trade and Tariffs prohibits discriminatory import tariffs, GATT rules include means by which this prohibition can be circumvented. The previous literature use static models to show that discriminatory tariffs increase welfare. In a dynamic model, this is not necessarily true. For example, with consumer switching costs, current market share is valuable. In this case, discriminatory tariffs are higher for firms with a higher market share. In expectation of such policies, firms price less aggressively. If switching costs are significant relative to exporting country asymmetries then this adverse affect on incentives can result in lower importing country welfare. This suggests that it might be in the interests of importers to abide by the GATT MFN principle.
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Bibliographic InfoPaper provided by Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick in its series CSGR Working papers series with number 07/98.
Date of creation: May 1998
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discriminatory tariffs; endogenous protection; switching costs; market share.;
Other versions of this item:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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