Multiple Marginalization and Trade Liberalization: The Case of the Canadian Dairy Industry
The paper analyzes the welfare impacts of trade liberalization under multiple marginalization through a spatial quilibrium model of provincial dairy markets. Canada’s dairy policy implements a supply management scheme designed to achieve higher domestic prices for farmers, taking into account the mark-up rules used by downstream firms. Our model builds on the reciprocal dumping model of Brander and Krugman (1983) as processing firms from different provinces compete à la Cournot with one another in several provinces. Simulations reveal that welfare in the Canadian dairy sector could increase by as much as $1 billion per year if aggressive tariff cuts were made while moderate liberalization plans would yield annual gains of $234.5 million. Even large producing provinces like Quebec and Ontario gain from trade liberalization. In comparison, a perfect competition model yields more modest welfare gains in the range of $15.6 million and $34.5 million. Finally, we show that the switch in the sign of the transport cost-welfare relation identified by Brander and Krugman (1983) occurs at transport costs that are too high to be policy-relevant.
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- Karl Meilke & Rakhal Sarker & Danny Roy, 1998. "The Potential for Increased Trade in Milk and Dairy Products between Canada and the United States under Trade Liberalization," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 46(2), pages 149-169, 07.
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- Richard Friberg & Mattias Ganslandt, 2008. "Reciprocal Dumping with Product Differentiation," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 942-954, November.
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