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Type: Journal article
Title: Uniform versus discriminatory tariffs
Author: Hashimzade, N.
Khodavaisi, H.
Myles, G.
Citation: Review of Development Economics, 2011; 15(3):403-416
Publisher: Blackwell Publishing
Issue Date: 2011
ISSN: 1363-6669
Statement of
Nigar Hashimzade, Hassan Khodavaisi, and Gareth D. Myles
Abstract: We analyze the non-cooperative interaction between two exporting countries producing differentiated products and one importing country when governments use optimal policies to maximize welfare. The analysis includes product differentiation, asymmetric costs, and Bertrand competition. For identical exporting countries we demonstrate that the importing country always prefers a uniform tariff regime while both exporting countries prefer a discriminatory tariff regime for any degree of product differentiation. If countries are asymmetric in terms of production cost then the higher-cost exporter always prefers the discriminatory regime but the lower-cost exporter prefers the uniform regime if there is a significant cost differential. With cost asymmetry the announcement of a uniform tariff regime by the importer is not a credible strategy since there is an incentive to deviate to discrimination. This implies an international body can play a role in ensuring that tariff agreements are respected.
Rights: © 2011 Blackwell Publishing
DOI: 10.1111/j.1467-9361.2011.00616.x
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