Dynamics and Discriminatory Import Policy
Although the GATT prohibits discriminatory import tariffs, it includes means for circumventing this prohibition. The previous literature uses static models and discriminatory tariffs increase welfare. In a dynamic model, if governments lack the ability to precommit, this is not necessarily true. For example, with consumer switching costs, tariffs are higher for firms with higher market share. Rationally expecting such policies, firms price less aggressively. If switching costs are significant relative to asymmetries, then higher prices can result in lower importing country welfare. Thus it may be in interests of importers to abide by the GATT MFN principle.
|Date of creation:||10 Feb 1996|
|Date of revision:||28 Nov 1998|
|Note:||forthcoming in Candian Journal of Economics; Type of Document - LaTeX; prepared on IBM PC; to print on any; pages: 14; figures: none|
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