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Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry

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  • James A. Brander
  • Barbara J. Spencer

Abstract

This paper examines the incentives for using tariffs to extract monopoly rents from imperfectly competitive foreign firms. Using a simple Stackelberg entry deterrence model, the rent-extracting policy is attractive if the foreign firm faces a threat of domestic entry. Despite transportation costs, the Stackelberg leader-follower model can lead to intra-industry trade in the same commodity.

Suggested Citation

  • James A. Brander & Barbara J. Spencer, 1980. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Working Paper 414, Economics Department, Queen's University.
  • Handle: RePEc:qed:wpaper:414
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    1. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66, pages 215-215.
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