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Trade Warfare: Tariffs and Cartels

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  • James A. Brander
  • Barbara J. Spencer

Abstract

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.

Suggested Citation

  • James A. Brander & Barbara J. Spencer, 1983. "Trade Warfare: Tariffs and Cartels," NBER Working Papers 1193, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1193
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    References listed on IDEAS

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    1. Peter Svedberg, 1979. "Optimal Tariff Policy on Imports from Multinationals," The Economic Record, The Economic Society of Australia, vol. 55(1), pages 64-67, March.
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