IDEAS home Printed from https://ideas.repec.org/p/ags/queddp/275189.html
   My bibliography  Save this paper

Tariffs and the Extraction of Foreign Monopoly Rents Under Potential Entry

Author

Listed:
  • Brander, James A.
  • Spencer, Barbara

Abstract

This paper examines the incentives for using tariffs to extract monopoly rents from imperfectly competitive foreign firms. Under imperfect competition price exceeds marginal cost so that a country which imports such a good pays a rent to the foreign firm (unless the firm happens to earn only normal profits). Tariffs can be used to extract some of this rent. On the basis of a simple Stackelberg entry deterrence model, the paper shows that the rent-extracting policy is particularly attractive if the foreign firm faces a threat of domestic entry. In the special case in which a domestic entrant would produce only for its home market some rent can be extracted without reducing the level of imports or domestic consumption of the good. Despite transportation costs, it is shown that the Stackelberg leader-follower model can lead to intra-industry trade in the same commodity. The rent-extracting tariff policy is then examined in the case that a potential domestic entrant may produce both for the home and export markets.

Suggested Citation

  • Brander, James A. & Spencer, Barbara, 1980. "Tariffs and the Extraction of Foreign Monopoly Rents Under Potential Entry," Queen's Institute for Economic Research Discussion Papers 275189, Queen's University - Department of Economics.
  • Handle: RePEc:ags:queddp:275189
    DOI: 10.22004/ag.econ.275189
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/275189/files/QUEENS-IER-PAPER-414.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.275189?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. A. Michael Spence, 1979. "Investment Strategy and Growth in a New Market," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 1-19, Spring.
    2. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66, pages 215-215.
    3. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
    4. Lancaster, Kelvin, 1980. "Intra-industry trade under perfect monopolistic competition," Journal of International Economics, Elsevier, vol. 10(2), pages 151-175, May.
    5. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    6. Klaus Stegemann, 1979. "State Trading and Domestic Distortions in a Mixed World Economy," Working Paper 357, Economics Department, Queen's University.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paulo Bastos & Odd Rune Straume, 2012. "Globalization, product differentiation, and wage inequality," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(3), pages 857-878, August.
    2. Koushik Das, 2014. "General Equilibrium Analysis of Strategic Trade," Foreign Trade Review, , vol. 49(3), pages 219-245, August.
    3. Horácio Faustino & Nuno Leitão, 2007. "Intra-Industry Trade: A Static and Dynamic Panel Data Analysis," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 13(3), pages 313-333, August.
    4. Nuno Carlos LEITÃO & Marius-Razvan SURUGIU & Camelia SURUGIU, 2014. "Romanian intra-industry trade: a panel data approach," EuroEconomica, Danubius University of Galati, issue 2(33), pages 7-18, November.
    5. Bernhofen, Daniel M., 1999. "Intra-industry trade and strategic interaction: Theory and evidence," Journal of International Economics, Elsevier, vol. 47(1), pages 225-244, February.
    6. Chengang Wang & Yingqi Wei & Xiaming Liu, 2010. "Determinants of Bilateral Trade Flows in OECD Countries: Evidence from Gravity Panel Data Models," The World Economy, Wiley Blackwell, vol. 33(7), pages 894-915, July.
    7. repec:kap:iaecre:v:14:y:2008:i:4:p:355-368 is not listed on IDEAS
    8. Dutta, Sourish, 2022. "Two Approaches of Measuring Intra-industry Trade," EconStor Preprints 259000, ZBW - Leibniz Information Centre for Economics.
    9. Sourish Dutta, 2022. "Measuring Horizontal and Vertical Differentiation in Intra-industry Trade," Working Papers hal-03683580, HAL.
    10. Koushik Das & Pinaki Chakraborti, 2014. "General Equilibrium Analysis of Strategic Trade: A Computable General Equilibrium Model for India," IIM Kozhikode Society & Management Review, , vol. 3(2), pages 165-181, July.
    11. Krugman, Paul R., 1989. "Industrial organization and international trade," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 20, pages 1179-1223, Elsevier.
    12. Sourish Dutta, 2022. "The Problem of Measuring Intra-industry Trade," Working Papers hal-03681243, HAL.
    13. Michaël Freudenberg & Françoise Lemoine, 1999. "Central and Eastern European Countries in the International Division of Labour in Europe," Working Papers 1999-05, CEPII research center.
    14. Nuno Carlos Leitão & Henrique Freixa Braz & Pedro Oliveira, 2022. "Revisiting Marginal Intra-Industry Trade and Portuguese Labour Market," Evaluation Review, , vol. 46(3), pages 336-359, June.
    15. Dimitri Mardas & Chistos Nikas, 2008. "European Integration, Intra-industry Trade in Vertically Differentiated Products and the Balkan Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 14(4), pages 355-368, November.
    16. Andrzej Cieślik, 2013. "Horizontally-integrated MNE and plant heterogeneity," Bank i Kredyt, Narodowy Bank Polski, vol. 44(6), pages 605-622.
    17. repec:kap:iaecre:v:13:y:2007:i:3:p:313-333 is not listed on IDEAS
    18. Bruno Henry de Frahan & Patricia Libert, 1996. "Le commerce intra-banche dans l'industrie agro-alimentaire européenne. Une nouvelle forme de globalisation," Économie rurale, Programme National Persée, vol. 234(1), pages 78-88.
    19. Hartman, Darcy A. & Henderson, Dennis R. & Sheldon, Ian M., 1992. "A Cross-Section Analysis of Multilateral Intra-Industry Trade in the U.S. Processed Food and Beverage Sectors," Occasional Papers 233086, Regional Research Project NC-194: Organization and Performance of World Food Systems.
    20. Sandoval-Bravo, Salvador. & Coronado-Ramírez, Semei Leopoldo. & Porras-Serrano, Jesús., 2012. "Reciprocal Dumping and Environmental Taxes," Panorama Económico, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 0(14), pages 97-119, primer se.
    21. Egger, Hartmut & Egger, Peter & Greenaway, David, 2007. "Intra-industry trade with multinational firms," European Economic Review, Elsevier, vol. 51(8), pages 1959-1984, November.
    22. Elhanan Helpman, 2014. "Foreign Trade and Investment: Firm-level Perspectives," Economica, London School of Economics and Political Science, vol. 81(321), pages 1-14, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:queddp:275189. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/qedquca.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/qedquca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.