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Tariff (De‐) Escalation with Successive Oligopoly

  • Steve McCorriston
  • Ian Sheldon

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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File URL: http://hdl.handle.net/10.1111/j.1467-9361.2011.00629.x
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Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 15 (2011)
Issue (Month): 4 (November)
Pages: 587-600

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Handle: RePEc:bla:rdevec:v:15:y:2011:i:4:p:587-600
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  1. World Bank, 2003. "Global Economic Prospects 2004 : Realizing the Development Promise of the Doha Agenda," World Bank Publications, The World Bank, number 14782, April.
  2. 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.
  3. Corden, W. M., 1971. "The substitution problem in the theory of effective protection," Journal of International Economics, Elsevier, vol. 1(1), pages 37-57, February.
  4. 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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