Tariff Protection, Imperfect Competition, and Time Consistency
In the standard perfectly competitive model, an import (export) subsidy never constitutes an optimal trade policy for a large country. Yet, in their influential papers (1984a, 1984b) Brander and Spencer showed that an import subsidy could be the best policy to use in the presence of a foreign monopoly. This chapter shows that when production decisions are irreversible, and there is no precommitted trade policy, the conventional outcome of an optimal tariff reappears even in the presence of a foreign monopoly.1
KeywordsIncome Rium Monopoly Oligopoly
Unable to display preview. Download preview PDF.
- Brander, J. A. and B. J. Spencer (1984b), Tariff protection and imperfect competition, in H. Kierzkowski (ed.), Monopolistic Competition and International Trade. Oxford: Oxford University Press.Google Scholar
- De Meza, D. (1989), Not even strategic trade theory justifies export subsidies, Oxford Economic Papers 41. Oxford: Oxford University Press, 720–736.Google Scholar
- Lapan, H. E. (1988), The optimal tariff, production lags, and time consistency, American Economic Review 78, 395–401.Google Scholar
- Staiger, R. W. and G. Tabellini (1987), Discretionary trade policy and excessive protection, American Economic Review 77, 823–837.Google Scholar