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Discriminatory Tariffs for a Monopolist Under Incomplete Information

Author

Listed:
  • Thomas J. Prusa

    (Rutgers University)

  • Dobrin Kolev

    (Mitchell Madison Group)

Abstract

We examine the incentives for a government to levy an optimal tariff on a foreign monopolist. With complete information, the size of the tariff is proportional to the firm's efficiency. By contrast, if the government is not completely informed about costs, there exists an incentive for the monopolist to strategically signal its inefficiency through export restraints if doing so brings about a lower tariff in future periods. We show that (i) the usual single crossing property of signaling games is not satisfied and (ii) under reasonable conditions the unique self-enforcing outcome involves the firm exporting the same quantity regardless of its efficiency. In other words, a policy of optimal discriminatory tariffs is unimplementable under incomplete information. The welfare consequences for the government are examined.

Suggested Citation

  • Thomas J. Prusa & Dobrin Kolev, 1997. "Discriminatory Tariffs for a Monopolist Under Incomplete Information," Departmental Working Papers 199623, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:199623
    as

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    More about this item

    Keywords

    incomplete information; monopoly; signaling; tariffs;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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