Tariffs and markups in retailing
Matthew Cole () and
Carsten Eckel ()
Journal of International Economics, 2018, vol. 113, issue C, 139-153
Tariffs on imported products are typically expected to raise the relative price of foreign goods and, as a result, increase the residual demands of domestic substitutes. In this paper we show, more generally, that these changes in wholesale/manufacturing prices can be offset and even dominated by adjustments in retail markups. Retailers have an incentive to charge the highest markups on the lowest-cost products and to adjust the markups on these products most actively. Thus, if the procurement costs of some foreign products rise, retailers will absorb these cost increases by raising prices relatively more on their relatively more efficient products, thereby mitigating the benefits of a protectionist tariff. We show that this effect can dominate the traditional substitution effect, which highlights the need to better understand the role of retailers in trade policy.
Keywords: Variable markups; Retailing; Trade policy (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Tariffs and Markups in Retailing (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:113:y:2018:i:c:p:139-153
Access Statistics for this article
Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and RodrÃguez-Clare, AndrÃ©s
More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().