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Domestic trade protection in vertically-related markets

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  • Wang, Kuang-Cheng A.
  • Koo, Hui-Wen
  • Chen, Tain-Jy

Abstract

We consider trade policy in a setting where home country firms are fully dependent on vertically-integrated foreign firms for supplies of a key input. We find that vertically-integrated firms' strategic considerations play an important role and that, in particular, a tariff on final goods may either increase or decrease the domestic price of final goods. The import of final goods is always taxed to extract and shift rents from foreign firms, while the import of intermediate goods can be either taxed or subsidized. The market structure is shown to be an important consideration when making trade policy.

Suggested Citation

  • Wang, Kuang-Cheng A. & Koo, Hui-Wen & Chen, Tain-Jy, 2011. "Domestic trade protection in vertically-related markets," Economic Modelling, Elsevier, vol. 28(4), pages 1595-1603, July.
    • Handle: RePEc:eee:ecmode:v:28:y:2011:i:4:p:1595-1603
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    References listed on IDEAS

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    Cited by:

    1. Kuang-Cheng Andy Wang & Dang-Long Bui & Yi-Jie Wang & Wen-Jung Liang, 2023. "International licensing under an endogenous tariff in vertically-related markets," Journal of Economics, Springer, vol. 139(2), pages 93-123, July.
    2. Viktorija Skvarciany & Daiva Jurevičienė & Silvija Vidžiūnaitė, 2020. "The Impact of Russia’s Import Embargo on the EU Countries’ Exports," Economies, MDPI, vol. 8(3), pages 1-21, August.
    3. Aleksandr Vashchilko, 2013. "Vertically related markets, tariffs, and technology adoption," Journal of Economics, Springer, vol. 110(3), pages 273-286, November.
    4. Chen, Fang-Yueh, 2023. "Trade warfare and sanctions in vertically related markets," Economic Modelling, Elsevier, vol. 121(C).

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