Protection for Sale with Price Interactions and Incomplete Pass-Through

30 Pages Posted: 8 Jun 2018

See all articles by Barbara Annicchiarico

Barbara Annicchiarico

University of Rome, Tor Vergata - Department of Economics and Finance; University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS)

Enrico Marvasi

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering

Date Written: June 8, 2018

Abstract

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

Annicchiarico, Barbara and Marvasi, Enrico, Protection for Sale with Price Interactions and Incomplete Pass-Through (June 8, 2018). CEIS Working Paper No. 435. Available at SSRN: https://ssrn.com/abstract=3192935 or http://dx.doi.org/10.2139/ssrn.3192935

Barbara Annicchiarico (Contact Author)

University of Rome, Tor Vergata - Department of Economics and Finance ( email )

Rome, I-00133
Italy

University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS) ( email )

Via Columbia, 2
Rome, I-00133
Italy

Enrico Marvasi

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering ( email )

Via Lambruschini 4C - building 26/A
Milano, 20156
Italy

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