The Chocie of Optimal Protection and Oligopoly: Import Tariffs vs Production Subsidies
This paper analyzes the choice of import tariffs and production subsidies to provide optimal protection of domestic industry in the presence of oligopolistic competition, provided that there is a difference in costs between domestic and foreign firms. We show that the choice of optimal protection depends both on the difference in firms' costs and the relative number of firms across countries. First, in the case that the number of foreign firms is larger, an optimal protection is a production subsidy, regardless of the difference in costs. Second, in the case that the number of foreign firms is equal to, or less than that of domestic firms, an import tariff provides optimal protection if the difference in costs is large, while a production subsidy provides optimal protection if the differece in costs is small.
|Date of creation:||Oct 1997|
|Date of revision:||Oct 1997|
|Publication status:||Published in the Japanese Economic Review, 2002, vol. 53, issue 3. pp. 301-314.|
|Contact details of provider:|| Postal: 1-155 Uegahara Ichiban-cho, Nishinomiya, Hyogo 662-8501|
Web page: http://www-econ.kwansei.ac.jp/~econ/index_e.html
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- Brander, James A. & Spencer, Barbara J., 1985.
"Export subsidies and international market share rivalry,"
Journal of International Economics,
Elsevier, vol. 18(1-2), pages 83-100, February.
- James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
- Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
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