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Tariff-Limit Pricing, Relative Plant Scale, and the Eastman-Stykolt Hypothesis


  • R. Andrew Muller
  • Dev Rawana


This paper provides a formal basis for the widely held proposition, sometimes called the Eastman-Stykolt effect, that the interaction of tariff protection and small domestic market size prevents Canadian firms from achieving scale efficiency. It considers a free-entry, Cournot-Nash equilibrium in a homogeneous goods industry protected by tariffs. The model demonstrates that the tariff-limit pricing effect can arise without appeal to collusion or product differentiation. Moreover, it is not appropriate to test for the Eastman-Stykolt effect by simply including the interaction of market size and tariffs in a regression explaining relative plant scale.

Suggested Citation

  • R. Andrew Muller & Dev Rawana, 1990. "Tariff-Limit Pricing, Relative Plant Scale, and the Eastman-Stykolt Hypothesis," Canadian Journal of Economics, Canadian Economics Association, vol. 23(2), pages 323-331, May.
  • Handle: RePEc:cje:issued:v:23:y:1990:i:2:p:323-31

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    1. repec:cup:apsrev:v:60:y:1966:i:01:p:29-38_12 is not listed on IDEAS
    2. J. W. Friedman, 1968. "Reaction Functions and the Theory of Duopoly," Review of Economic Studies, Oxford University Press, vol. 35(3), pages 257-272.
    3. Paul A. Samuelson, 2011. "The Collected Scientific Papers of Paul Samuelson," MIT Press Books, The MIT Press, edition 1, volume 7, number 0262015749 edited by Janice Murray, January.
    4. R. M. Cyert & M. H. DeGroot, 1970. "Multiperiod Decision Models with Alternating Choice as a Solution to the Duopoly Problem," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 410-429.
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    Cited by:

    1. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April.
    2. Ian Keay, 2001. "An Empty Promise: Average Cost Savings and Scale Economies Among Canadian and American Manufacturers, 1910-1998," Working Papers 1002, Queen's University, Department of Economics.

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