Domestic trade protection in vertically-related markets

Kuang-Cheng A. Wang, Hui-Wen Koo and Tain-Jy Chen

Economic Modelling, 2011, vol. 28, issue 4, 1595-1603

Abstract: We consider trade policy in a setting where home country firms are fully dependent on vertically-integrated foreign firms for supplies of a key input. We find that vertically-integrated firms' strategic considerations play an important role and that, in particular, a tariff on final goods may either increase or decrease the domestic price of final goods. The import of final goods is always taxed to extract and shift rents from foreign firms, while the import of intermediate goods can be either taxed or subsidized. The market structure is shown to be an important consideration when making trade policy.

Keywords: Market; structure; Vertically-integrated; firms; Vertically-related; markets (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:28:y:2011:i:4:p:1595-1603

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