Trade Policy, Market Leaders and Endogenous Competition Intensity

CERGE-EI Working Paper No. 311

30 Pages Posted: 29 Apr 2008

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Delia Simona Ionascu

affiliation not provided to SSRN

Krešimir Žigić

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Date Written: October 1, 2006

Abstract

It is well known that tariff policy can alleviate the negative consequences of breaching intellectual property rights by foreign firms. Yet, the positive effect of tariff protection is thought to be the benefit firms get at the expense of consumers (at least in the short run). Using a set-up in which the intensity of market competition is endogenous, we argue that consumers can benefit from tariffs even in the short run. A high level of tariff protection alters the firms' cost efficiency distribution and induces tougher market competition. Consumers benefit from the tariff policy, and governments that assign a high enough weight to the consumer surplus set positive tariff levels. Under protection the innovation level remains the same as under free trade but the average industry efficiency increases.

Keywords: tariff protection, supergames, cost asymmetries, market conduct, leadership, consumer welfare

JEL Classification: F12, F13

Suggested Citation

Boone, Jan and Ionascu, Delia Simona and Žigić, Krešimir, Trade Policy, Market Leaders and Endogenous Competition Intensity (October 1, 2006). CERGE-EI Working Paper No. 311, Available at SSRN: https://ssrn.com/abstract=1125714 or http://dx.doi.org/10.2139/ssrn.1125714

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

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Centre for Economic Policy Research (CEPR)

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TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
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Delia Simona Ionascu

affiliation not provided to SSRN

Krešimir Žigić

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

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Czech Republic
+42 02 2400 5245 (Phone)
+42 02 2421 1374 (Fax)

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