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Tariffs Passing Through Retailers: Do Tariffs Actually Protect Domestic Manufacturers?

Listed author(s):
  • Matthew T. Cole

    ()

    (Department of Economics, Florida International University)

  • Carsten Eckel

    (University of Munich and CESifo)

Historically, tari?s have been an attractive policy tool to protect domestic industries.The bene?ts of such a policy are based on theoretical models that assume foreign manufacturers sell directly to consumers. However, recent empirical evidence suggests that wholesalers and retailers play an active role in international trade. We present a model of retailers that illustrates how accounting for these strategic intermediaries can actually make some domestic manufacturers worse off in response to an increased tariff. Moreover, any production gains that occur are biased towards higher cost domestic manufacturers. This result is not driven by the cannibalization effect of the multi-product ?rm literature rather it is the fact that retailers compete over the marginal consumer (the extensive margin).

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File URL: http://economics.fiu.edu/research/working-papers/2014/1404/1404.pdf
File Function: First version, 2014
Download Restriction: no

Paper provided by Florida International University, Department of Economics in its series Working Papers with number 1404.

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Length: 26 pages
Date of creation: Mar 2014
Handle: RePEc:fiu:wpaper:1404
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Web page: http://economics.fiu.edu

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  1. Rabah Amir & Jim Y. Jin & Gerald Pech & Michael Tröge, 2016. "Prices and Deadweight Loss in Multiproduct Monopoly," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(3), pages 346-362, 06.
  2. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
  3. Hellerstein, Rebecca, 2008. "Who bears the cost of a change in the exchange rate? Pass-through accounting for the case of beer," Journal of International Economics, Elsevier, vol. 76(1), pages 14-32, September.
  4. Berner, Eike & Birg, Laura, 2012. "Retailers and Consumers: The pass-through of import price changes," Center for European, Governance and Economic Development Research Discussion Papers 133, University of Goettingen, Department of Economics.
  5. Bernardo S. Blum & Sebastian Claro & Ignatius Horstmann, 2010. "Facts and Figures on Intermediated Trade," American Economic Review, American Economic Association, vol. 100(2), pages 419-423, May.
  6. Horst Raff & Nicolas Schmitt, 2009. "Imports, Pass-Through, and the Structure of Retail Markets," CESifo Working Paper Series 2817, CESifo Group Munich.
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