IDEAS home Printed from
   My bibliography  Save this paper

A theory of dynamic tariff and quota retaliation


  • Naqvi, Nadeem


This paper establishes relationships between static Nash equilibria and dynamic Markov perfect equilibria of tariff and quota retaliation games. In supermodular games where tariffs are strategic complements, the steady state of every, symmetric Markov perfect equilibrium must have lower tariffs than in the static equilibrium. If tariffs are strategic substitutes, tariffs in the dynamic game are higher than in the static equilibrium. The supermodular case is extended to quota competition. Instead of the well-known non-equivalence between tariff and quota retaliation outcomes under complete myopia, in some circumstances, free trade can be supported in the steady state of a Markov perfect equilibrium, regardless of whether policies employed are quotas or tariffs. We reach the conclusion that the effect of introducing dynamics crucially depends on whether the policy instruments employed by the countries are strategic substitutes or complements irrespective of whether they are tariffs or quotas.

Suggested Citation

  • Naqvi, Nadeem, 2010. "A theory of dynamic tariff and quota retaliation," MPRA Paper 27656, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:27656

    Download full text from publisher

    File URL:
    File Function: original version
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Ausubel, Lawrence M & Deneckere, Raymond J, 1993. "A Generalized Theorem of the Maximum," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(1), pages 99-107, January.
    2. Dana, Rose-Anne & Montrucchio, Luigi, 1986. "Dynamic complexity in duopoly games," Journal of Economic Theory, Elsevier, vol. 40(1), pages 40-56, October.
    3. Taiji Furusawa, 2004. "Threats and Promises in Tariff Setting," Econometric Society 2004 Far Eastern Meetings 635, Econometric Society.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. repec:ksp:journ1:v:4:y:2017:i:3:p:247-262 is not listed on IDEAS

    More about this item


    Foreign trade policy; Tariff; Quota; Retaliation; Dynamic Game; Markov perfect equilibrium; Supermodular games;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:27656. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.