Tariff discrimination for co-existence of domestic and foreign firms with increasing marginal costs

Kangsik Choi and Seonyoung Lim

The Journal of International Trade & Economic Development, 2024, vol. 33, issue 6, 1190-1207

Abstract: When foreign exporters and domestic firms are allowed to produce under asymmetrically increasing marginal costs, the high-cost exporter is handicapped, whereas the low-cost exporter is subsidized in a discriminatory tariff regime. Thus, the profit of the high-cost (low-cost) exporter is smaller (larger) under discriminatory tariffs than under uniform ones. Regardless of the domestic firm type, total output, consumer surplus, low-cost exporter profits, and social and global welfare are always greater under discriminatory tariffs than under uniform ones. Even when exporters and low- and high-cost domestic firms coexist, our main results hold, while both types of domestic firm prefer uniform tariffs to discriminatory ones.

Date: 2024
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DOI: 10.1080/09638199.2023.2241085

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