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OPTIMUM‐WELFARE AND MAXIMUM‐REVENUE TARIFFS UNDER BERTRAND DUOPOLY
Author(s) -
Clarke Roger,
Collie David R.
Publication year - 2006
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2006.00386.x
Subject(s) - cournot competition , duopoly , tariff , economics , microeconomics , revenue , bertrand competition , economic surplus , welfare , oligopoly , international economics , market economy , finance
This article derives the maximum‐revenue tariff and the optimum‐welfare tariff under Bertrand duopoly with differentiated products. It is shown that both tariffs are lower under Bertrand duopoly than under Cournot duopoly. Also, the optimum‐welfare tariff may exceed the maximum‐revenue tariff under both Bertrand duopoly and Cournot duopoly. This result is more likely the lower the costs of the home firm relative to the costs of the foreign firm, and the greater the degree of product substitutability. Also, it is shown that the optimum‐welfare tariff is less likely to exceed the maximum‐revenue tariff under Bertrand duopoly than under Cournot duopoly.