Tariff (De‐) Escalation with Successive Oligopoly
In this paper, we explore the issue of a simultaneous reduction in tariffs at different stages of a vertically-related market where each stage is oligopolistic. When vertically-related markets are characterized as a successive oligopoly, reducing tariffs by an equivalent amount on upstream and downstream imports will have a differential effect on market access and hence profits at each stage due to a combination of horizontal and vertical effects. As a consequence, in order to maintain parity between the upstream and downstream stages in terms of changes in domestic firms’ profits, tariffs on downstream imports should be reduced proportionately more than tariffs on upstream imports. This provides a rationale for tariff-reduction formulae aimed at reducing tariff escalation.
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Volume (Year): 15 (2011)
Issue (Month): 4 (November)
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References listed on IDEAS
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- Ishikawa, Jota & Spencer, Barbara J., 1999.
"Rent-shifting export subsidies with an imported intermediate product,"
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- Jota Ishikawa & Barbara J. Spencer, 1996. "Rent-Shifting Export Subsidies with an Imported Intermediate Product," NBER Working Papers 5458, National Bureau of Economic Research, Inc.
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- Wilfred J. Ethier, 1977. "The Theory of Effective Protection in General Equilibrium: Effective-Rate Analogues of Nominal Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 233-45, May.
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