Strategic Tariff Protection, Market Conduct, and Government Commitment Levels in Developing Economies
We analyze a simple “tariffs cum foreign competition” policy targeted at enhancing thecompetitive position of a domestic, developing country firm that competes with its developed country counterpart on the domestic market and that carries out an innovative (imitative) effort. We evaluate this policy with respect to social welfare, type of oligopoly conduct, information requirement, time consistency, possibility of manipulative behavior and conclude that the most robust policy set-up is that in which the domestic government is unable to precommit to the level of its policy. Finally, we examine this policy, allowing for asymmetric information, and show that the corresponding social welfare may be higher than under perfect
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