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Optimal Tariffs with Endogenous Entry Mode: Uniform Versus Discriminatory Tariffs

Author

Listed:
  • Wu Tsaur-Chin

    (Department of Public Finance, Feng Chia University, Taichung, Taiwan)

  • Lin Chin-Ho

    (Department of Business Management, National Sun Yat-Sen University, Kaohsiung, Taiwan)

  • Chang Chia-Jen

    (Department of Public Affairs and Civic Education, National Changhua University of Education, Changhua, Taiwan)

Abstract

This paper is the first to examine the welfare impact of two tariff regimes when firms’ entry mode is endogenously determined via export or foreign direct investment (FDI) under a three-country, two-firm model. First, both uniform and discriminatory tariffs reveal an asymmetrical entry mode, where the high (low)-cost firm prefers export (FDI) and vice versa. Second, if both high and low-cost firms choose export under uniform tariffs but the high (low)-cost firm chooses export (FDI) under discriminatory tariffs, the importing country prefers uniform tariffs, and global welfare is higher with uniform tariffs. Third, if the high (low)-cost firm chooses FDI (export) under uniform tariffs but export (FDI) under discriminatory tariffs, the importing country prefers uniform tariffs, and global welfare is greater with discriminatory tariffs.

Suggested Citation

  • Wu Tsaur-Chin & Lin Chin-Ho & Chang Chia-Jen, 2025. "Optimal Tariffs with Endogenous Entry Mode: Uniform Versus Discriminatory Tariffs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 25(4), pages 899-934.
    • Handle: RePEc:bpj:bejeap:v:25:y:2025:i:4:p:899-934:n:1012
    DOI: 10.1515/bejeap-2025-0114
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    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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