Robust trade policy to offset foreign market power
Phillip McCalman
European Economic Review, 2023, vol. 154, issue C
Abstract:
While it is well known that trade policy can be used to counter foreign firm market power, it suffers from a lack of robustness over what form it should take. If the import demand function has a certain curvature then a tariff will improve importer welfare while an import subsidy will lower it. However, the opposite holds if the import demand function has a different shape. Picking the right option is made even more difficult as there is little hope of confidently identifying the curvature of import demand. This paper demonstrates that moving beyond the either/or dichotomy and using a combination of an ad valorem tariff and a specific import subsidy can completely offset a foreign firm’s market power. This policy is not subject to the information constraints that undermine the single instrument choice, making it more robust. Combining it with a simple fiscal neutrality constraint delivers an efficient outcome, which is also robust to; country size; whether the market power is in the hands of a foreign exporter (monopoly) or importer (monopsony); and, more generally, the nature of conduct when more than one foreign firm has market power (oligopoly/oligopsony).
Keywords: Market power; Trade policy (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292123000636
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:154:y:2023:i:c:s0014292123000636
DOI: 10.1016/j.euroecorev.2023.104434
Access Statistics for this article
European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer
More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).