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Trade Policy, Market Leaders and Endogenous Competition Intensity

Author

Listed:
  • Jan Boone
  • Delia Ionascu
  • Kresimir Zigic

Abstract

It is well known that tariff policy can alleviate the negative consequences of breaching intellectual property rights by foreign firms. Yet, the positive effect of tariff protection is thought to be the benefit firms get at the expense of consumers (at least in the short run). Using a set-up in which the intensity of market competition is endogenous, we argue that consumers can benefit from tariffs even in the short run. A high level of tariff protection alters the firms’ cost efficiency distribution and induces tougher market competition. Consumers benefit from the tariff policy, and governments that assign a high enough weight to the consumer surplus set positive tariff levels. Under protection the innovation level remains the same as under free trade but the average industry efficiency increases.

Suggested Citation

  • Jan Boone & Delia Ionascu & Kresimir Zigic, 2006. "Trade Policy, Market Leaders and Endogenous Competition Intensity," CERGE-EI Working Papers wp311, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp311
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    References listed on IDEAS

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    Cited by:

    1. Federico Etro, 2011. "Endogenous Market Structures And Strategic Trade Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 63-84, February.
    2. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.

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    More about this item

    Keywords

    Tariff protection; supergames; cost asymmetries; market conduct; leadership; consumer welfare;
    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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