Ivette Jans and
Howard Wall ()
Archive Discussion Papers from Birkbeck, Department of Economics, Mathematics & Statistics
When foreign and domestic firms collude under free trade, a tariff can be pro-competitive because it drives a wedge between the interests of the firms. However, only if the firms meet in a small number of countries can a tariff be used to prevent international collusion. In the case in which a tariff can preclude collusion, the optimal tariff is high enough to do so, and is higher than in otherwise-equivalent static models of imperfect competition without collusion. In contrast with conventional models, the pro-competitive effect of a domestic tariff may mean that the tariff that is optimal for the dometic country is also the worldwide optimum.
JEL-codes: F13 F14 (search for similar items in EconPapers)
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