TY  - JOUR
AU  - Spencer,Barbara J.
AU  - Jones,Ronald W.
TI  - Trade and Protection in Vertically Related Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3023
PY  - 1989
Y2  - July 1989
UR  - http://www.nber.org/papers/w3023
L1  - http://www.nber.org/papers/w3023.pdf
N1  - Author contact info:
Barbara J. Spencer
University of British Columbia
Sauder School of Business
2053 Main Mall
Vancouver, BC  V6T 1Z2
CANADA
Tel: 604/822-8479
Fax: 604/822-8477
E-Mail: barbara.spencer@sauder.ubc.ca
AB  - A domestic firm is partially dependent on a foreign vertically integrated supplier for a key intermediate product when both firms are Cournot competitors in the market for the final product. The foreign supplier generally charges its domestic rival a price for the input that exceeds the independent monopoly level and vertical foreclosure may occur. Domestic policies applied to the vertically related products can increase domestic welfare by reducing the price and increasing the availability of imported supplies of the input. Vertical integration in the foreign supplier has significant implications for all three domestic policies considered: a tariff or subsidy on imports of both products and a domestic production subsidy. The foreign vertically integrated firm tends to reduce its price for the input in response to an import tariff on the final product, whereas a simple monopoly supplier would respond by increasing its export price. Also domestic cost conditions for the production of the input can critically affect the desirability of a tax as apposed to a subsidy on intermediate imports.
ER  -