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Trade Policy and Access to Retail Distribution

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  • Martin Richardson

Abstract

This paper develops a model in which foreign and domestic manufacturers producing differentiated goods sell through spatially differentiated retailers. There is free entry into retailing but access to the retail distribution network (entry into manufacturing) is controlled. We compare the use of tariffs on imports and direct controls of foreign manufacturing entry as means of increasing domestic welfare. It is shown that, in one special case of the model, foreign entry is always welfare-improving when tariffs can be used. When trade policy is not available, however, a little entry is welfare-reducing whereas a lot of entry is welfare-improving; it is noted that this property holds in other settings. Finally, simulations of the full model show that foreign entry may always be welfare-improving even with no tariffs, through its effects on the retail equilibrium. In particular, by increasing the range of products available it brings more consumers into the market and so makes retailing more profitable. This stimulates entry into retailing thus reducing the transport costs faced by consumers. We also discuss the choice of tariff in this setting and note that it increases with domestic entry. As the number of domestic firms increases, ceteris paribus, overall profits are declining but the domestic share is increasing as the foreign share declines. Accordingly, the profit-shifting role of a tariff is increasingly significant as its consequences for consumer prices declines.

Suggested Citation

  • Martin Richardson, "undated". "Trade Policy and Access to Retail Distribution," EPRU Working Paper Series 97-23, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:97-23
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    References listed on IDEAS

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    1. Laura D'Andrea Tyson, 1992. "Who's Bashing Whom? Trade Conflict in High-Technology Industries," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 86.
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    Cited by:

    1. Ishikawa, Jota & Morita, Hodaka & Mukunoki, Hiroshi, 2010. "FDI in post-production services and product market competition," Journal of International Economics, Elsevier, vol. 82(1), pages 73-84, September.
    2. Raff, Horst & Schmitt, Nicolas, 2005. "Endogenous vertical restraints in international trade," European Economic Review, Elsevier, vol. 49(7), pages 1877-1889, October.
    3. Horst Raff & Nicolas Schmitt, 2016. "Manufacturers and retailers in the global economy," Canadian Journal of Economics, Canadian Economics Association, vol. 49(2), pages 685-706, May.
    4. Carsten Eckel, 2009. "International Trade and Retailing," CESifo Working Paper Series 2597, CESifo Group Munich.
    5. TAKECHI Kazutaka, 2008. "International Strategic Alliances for Local Market Entry: Direct Launches versus Marketing Alliances in Pharmaceuticals," Discussion papers 08022, Research Institute of Economy, Trade and Industry (RIETI).
    6. Raff, Horst & Schmitt, Nicolas, 2006. "Exclusive dealing and common agency in international markets," Journal of International Economics, Elsevier, vol. 68(2), pages 485-503, March.
    7. Raff, Horst & Schmitt, Nicolas, 2009. "Buyer power in international markets," Journal of International Economics, Elsevier, vol. 79(2), pages 222-229, November.
    8. Raff, Horst & Schmitt, Nicolas, 2009. "Imports, pass-through, and the structure of retail markets," Kiel Working Papers 1556, Kiel Institute for the World Economy (IfW).
    9. Raff, Horst & Schmitt, Nicolas, 2015. "Retailing and international trade: A survey of the literature," Economics Working Papers 2015-02, Christian-Albrechts-University of Kiel, Department of Economics.
    10. Eichberger, Jürgen & Mueller-Langer, Frank, 2012. "On the Welfare Effects of Exclusive Distribution Arrangements," MPRA Paper 39691, University Library of Munich, Germany.
    11. Horst Raff & Nicolas Schmitt, 2012. "Imports and the structure of retail markets," Canadian Journal of Economics, Canadian Economics Association, vol. 45(4), pages 1431-1455, November.
    12. José J. Sempere Monerris & Rafael Moner Colonques & Amparo Urbano Salvador, 2010. "Trade liberalization in vertically related markets," Working Papers. Serie AD 2010-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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