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The Case of the Vanishing Revenues: Auction Quotas With Oligopoly

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  • Kala Krishna

Abstract

This paper examines the effects of auctioning quota licenses when market power exists. The overall conclusion is that with oligopolistic markets, quotas, even when set optimally and with quota licenses auctioned off, are - unlikely to dominate free trade. Moreover, auction quotas only strictly dominate giving away licenses which are competitively traded if the quota is quite restrictive. When there is a foreign duopoly or oligopoly and domestic competition it is shown that such sales of licenses does not raise revenues unless they are quite restrictive. An oligopoly example is explored to study the role of product differentiation, demand conditions and market conditions in determining the value of a license and the welfare effects of auctioning quotas. In this example, auction quotas are always worse than free trade. Finally, when there is a home duopoly and foreign competition, the price of a quota license is shown to be positive when the home and foreign goods are substitutes but to be zero when they are complements.

Suggested Citation

  • Kala Krishna, 1988. "The Case of the Vanishing Revenues: Auction Quotas With Oligopoly," NBER Working Papers 2723, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2723
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    1. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
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    Cited by:

    1. Giorgos Stamatopoulos, 2021. "Bidding for tariff exemptions in international oligopolies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(3), pages 515-532, June.
    2. Jaime de Melo & David Tarr, 2015. "VERs under imperfect competition and foreign direct investment: A case study of the US–Japan auto VER," World Scientific Book Chapters, in: Modeling Developing Countries' Policies in General Equilibrium, chapter 22, pages 461-483, World Scientific Publishing Co. Pte. Ltd..
    3. Helpman, Elhanan, 1989. "The Non-Competitive Theory of International Trade and Trade Policy," Foerder Institute for Economic Research Working Papers 275468, Tel-Aviv University > Foerder Institute for Economic Research.
    4. Krishna, Kala & Erzan, Refik & Tan, Ling Hui, 1994. "Rent Sharing in the Multi-fibre Arrangement: Theory and Evidence from U.S. Apparel Imports from Hong Kong," Review of International Economics, Wiley Blackwell, vol. 2(1), pages 62-73, February.
    5. Robert C. Feenstra, 1989. "Auctioning U.S. Import Quotas, Foreign Response, and Alternative Policies," NBER Working Papers 2839, National Bureau of Economic Research, Inc.
    6. Stamatopoulos, Giorgos, 2019. "A strategic tax mechanism," MPRA Paper 93602, University Library of Munich, Germany.
    7. Krishna, Kala, 1990. "The Case of the Vanishing Revenues: Auction Quotas with Monopoly," American Economic Review, American Economic Association, vol. 80(4), pages 828-836, September.
    8. McCorriston, Steve & Sheldon, Ian M., 1992. "Selling Import Quota Licenses: The U.S. Cheese Case," Occasional Papers 233091, Regional Research Project NC-194: Organization and Performance of World Food Systems.

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