Protection for Sale with Price Interactions and Incomplete Pass-Through
30 Pages Posted: 8 Jun 2018
Date Written: June 8, 2018
We extend the protection for sale model of Grossman and Helpman (1994) by introducing a general model of monopolistic competition with variable markups and incomplete pass-through. We show that the structure of protection emerging in the political equilibrium not only depends on the weight attached by the government to consumer welfare when making its policy decision, but also on the degree of market power of firms and on the terms-of-trade variations due to the degree of pass-through. Our results highlight the importance of demand characteristics in shaping the structure of protection and are consistent with the occurring of protectionism also in unorganized industries.
Keywords: Protection for Sale; Monopolistic Competition; Incomplete Pass-Through; Endogenous Markups
JEL Classification: F12, F13
Suggested Citation: Suggested Citation