Sequential tariffs with increasing marginal costs

This study examines the superiority of the discriminatory and uniform tariff regimes under both simultaneous and sequential arrangements in terms of social and global welfare by considering asymmetrically increasing marginal costs among exporters. Under Cournot competition, the importing country has...

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Bibliographic Details
Published in:The Manchester school 2023-07, Vol.91 (4), p.336-360
Main Authors: Choi, Kangsik, Lim, Seonyoung
Format: Article
Language:English
Subjects:
Cournot
Differentiation
Dominance
increasing marginal costs
Marginal costs
Product differentiation
sequential and simultaneous tariff
Social welfare
Tariffs
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Summary:This study examines the superiority of the discriminatory and uniform tariff regimes under both simultaneous and sequential arrangements in terms of social and global welfare by considering asymmetrically increasing marginal costs among exporters. Under Cournot competition, the importing country has an incentive to manipulate the tariff structure using a sequential tariff arrangement, which implies that it prefers to impose tariff on a low‐cost exporter first and a high‐cost exporter later. Sequential discriminatory (uniform) tariffs can achieve Pareto superiority from the perspective of consumer surplus, and social and global welfare if product differentiation is low (high). It is mainly because high‐cost (low‐cost) exporters are handicapped (subsidized) under alternative tariff regimes. In contrast to previous research, our analysis suggests the possibility that preferences for tariff regimes will change in the same direction for consumer surplus, social welfare, and global welfare.
ISSN:1463-6786
1467-9957
DOI:10.1111/manc.12438