Optimal Tariffs and Market Power: The Evidence

We find that prior to World Trade Organization membership, countries set import tariffs 9 percentage points higher on inelastically supplied imports relative to those supplied elastically. The magnitude of this effect is similar to the size of average tariffs in these countries, and market power exp...

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Bibliographic Details
Published in:The American economic review 2008-12, Vol.98 (5), p.2032-2065
Main Authors: Broda, Christian, Limão, Nuno, Weinstein, David E.
Format: Article
Language:English
Subjects:
Economics
Elasticity
Elasticity of demand
Exporters
Exports
Import policy
Imports
Industrial market
International trade
Lobbying
Market power
Political economy
Statistical median
Studies
Tariffs
Trade policy
Trade restrictions
Variables
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Summary:We find that prior to World Trade Organization membership, countries set import tariffs 9 percentage points higher on inelastically supplied imports relative to those supplied elastically. The magnitude of this effect is similar to the size of average tariffs in these countries, and market power explains more of the tariff variation than a commonly used political economy variable. Moreover, US trade restrictions not covered by the WTO are significantly higher on goods where the United States has more market power. We find strong evidence that these importers have market power and use it in setting noncooperative trade policy.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.98.5.2032