Backfiring Tariffs in Vertically Related Markets

Jota Ishikawa and Ki-Dong Lee

Chapter 12 in Strategic Trade Policy, 2026, pp 269-305 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter examines the effects on the domestic economy of domestic tariffs imposed on an intermediate good or a final good in vertically related markets which are characterized by Cournot oligopolies. Tariffs could lead a foreign firm to enter or exit from the domestic final-good market. Some of our results are counterintuitive. It is particularly shown that tariffs on the intermediate good which induce the entry could harm domestic intermediategood producers and/or benefit domestic final-good producers; and that tariffs on the final good which induce the exit could harm both domestic intermediate-good and final-good producers.

Keywords: Strategic Trade Policy; Rent-shifting; Monopoly; Oligopoly; Oligopsony; Trade Liberalization; Trade Costs; Tariffs; Subsidies; Foreign Direct Investment; Outsourcing; Segmented Markets; Integrated Markets; Intermediate Products; Vertical Market Structure; Information (search for similar items in EconPapers)
JEL-codes: F1 F10 F13 L1 (search for similar items in EconPapers)
Date: 2026
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