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Protection for sale under monopolistic competition: Beyond the CES

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  • Annicchiarico, Barbara
  • Marvasi, Enrico

Abstract

We extend the protection for sale model of Grossman and Helpman (1994) by introducing a general model of monopolistic competition with variable markups and incomplete pass-through. We show that the structure of protection emerging in the political equilibrium not only depends on the weight attached by the government to consumer welfare when making its policy decision, but also on the degree of market power of firms and on the terms-of-trade variations due to the degree of pass-through. Our results highlight the importance of preferences in shaping the structure of protection and are consistent with the occurring of protectionism also in unorganized industries.

Suggested Citation

  • Annicchiarico, Barbara & Marvasi, Enrico, 2019. "Protection for sale under monopolistic competition: Beyond the CES," European Journal of Political Economy, Elsevier, vol. 60(C).
  • Handle: RePEc:eee:poleco:v:60:y:2019:i:c:s0176268019300096
    DOI: 10.1016/j.ejpoleco.2019.06.003
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    More about this item

    Keywords

    Protection for sale; Monopolistic competition; Incomplete pass-through; Endogenous markups;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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