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Welfare-reducing optimal tariff in vertically related markets

Author

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  • Kazuhiro Takauchi

    (Kansai University)

  • Tomomichi Mizuno

    (Kobe University)

Abstract

Tougher competition in an upstream market lowers the input price, production cost of downstream firms, and vertical inefficiency; hence, it is likely to raise the welfares of the final-good importer. However, if the final-good importer sets an optimal tariff on the final good, a happy ending may not occur. We show that if more than one firm exists upstream of the final-good importer, because tougher competition in upstream price competition raises the tariff of the final-good importer and dominates the lowering effect of the input price, the consumer and total surpluses of the final-good importer fall.

Suggested Citation

  • Kazuhiro Takauchi & Tomomichi Mizuno, 2025. "Welfare-reducing optimal tariff in vertically related markets," Discussion Papers 2502, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:2502
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    File URL: http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2025/2502.pdf
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