The Chocie of Optimal Protection and Oligopoly: Import Tariffs vs Production Subsidies

Tsuyoshi Toshimitsu

No 19, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: This paper analyzes the choice of import tariffs and production subsidies to provide optimal protection of domestic industry in the presence of oligopolistic competition, provided that there is a difference in costs between domestic and foreign firms. We show that the choice of optimal protection depends both on the difference in firms' costs and the relative number of firms across countries. First, in the case that the number of foreign firms is larger, an optimal protection is a production subsidy, regardless of the difference in costs. Second, in the case that the number of foreign firms is equal to, or less than that of domestic firms, an import tariff provides optimal protection if the difference in costs is large, while a production subsidy provides optimal protection if the differece in costs is small.

JEL-codes: F12 F13 (search for similar items in EconPapers)
Pages: 15 pages
Date: 1997-10, Revised 1997-10
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Published in the Japanese Economic Review, 2002, vol. 53, issue 3. pp. 301-314.

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http://192.218.163.163/RePEc/pdf/kgdp19.pdf First version, 1997 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:19

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