NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Trade Warfare: Tariffs and Cartels

James A. Brander, Barbara J. Spencer

NBER Working Paper No. 1193
Issued in August 1983
NBER Program(s):   ITI   IFM

National governments have incentives to intervene in international markets, particularly in encouraging export cartels and in imposing tariffs on imports from imperfectly competitive foreign firms. Although the optimal response to foreign monopoly is usually a tariff, a specific subsidy will be optimal if demand is very convex, as with constant elasticity demand. If ad valorem tariffs or subsidies are considered, a subsidy is optimal if the elasticity of demand increases as consumption increases.The critical conditions in both ad valorern and specific cases hold generally for Cournot ologopoly. Noncooperative international policy equilibrium will be characterized by export cartels and rent-extracting tariffs.

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Document Object Identifier (DOI): 10.3386/w1193

Published: Brander, James A. and Barbara J. Spencer. "Trade Warfare: Tariffs and Cartels." Journal of International Economics, Vol. 16, No. 3, (May 1984), pp. 227-242. citation courtesy of

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