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Importers, Market Power and Optimal Tariffs

Author

Listed:
  • Jonathan Becker
  • Corina Boar
  • Virgiliu Midrigan

Abstract

Importers are few and large, have higher labor productivity and pass through cost changes to prices incompletely. We study optimal tariffs in a model consistent with these facts. Firms pay a fixed cost to import and charge markups that increase with size. Market power implies that importers are too few and too small relative to the efficient allocations. Tariffs amplify this distortion. We derive a formula that relates the optimal tariff not only to the foreign export supply elasticity but also to how much distortions amplify the effect of trade costs on welfare. In our calibrated economy the optimal tariff is negative and decreases with country size.

Suggested Citation

  • Jonathan Becker & Corina Boar & Virgiliu Midrigan, 2026. "Importers, Market Power and Optimal Tariffs," NBER Working Papers 35829, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35829
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    More about this item

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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