Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry
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.
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