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Two‐Part Trade Policy under Imperfect Competition
Author(s) -
Fuerst Timothy S.,
Kim Kyoo H.
Publication year - 1997
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00039
Subject(s) - cournot competition , economics , imperfect competition , commercial policy , competitor analysis , tariff , convexity , government (linguistics) , competition (biology) , license , microeconomics , imperfect , perfect information , international trade , international economics , ecology , linguistics , philosophy , management , political science , financial economics , law , biology
In this paper we consider the potential gain of a government pursuing a two‐part trade policy: an import license for entry, along with a per‐unit tariff on imports. The model is a two‐stage game of complete but imperfect information. In the first stage, the domestic government sets trade policy, while in the second stage the home and foreign producers behave as Cournot competitors. The paper demonstrates that the optimal trade policy depends upon the number of firms, the degree of heterogeneity in cost functions, and the degree of convexity in cost functions.