Domestic Purchase Requirement

30 Pages Posted: 19 Dec 2018 Last revised: 2 Jun 2019

See all articles by Samuel Häfner

Samuel Häfner

University of St. Gallen

Yvan Lengwiler

University of Basel - Faculty of Business and Economics (WWZ)

Date Written: May 30, 2019

Abstract

We consider the problem of allocating a tariff-rate quota among a small number of firms which act as middlemen between competitive producers and atomistic consumers and can import a perfect substitute at a fixed world price. We compare the traditional license-on-demand regime to administer such quotas with a domestic purchase requirement under which each firm is allocated a share of the quota that depends on the share of the total quantity bought from domestic suppliers. We give conditions such that the domestic purchase requirement strictly welfare-dominates the license system. Moreover, we show that for any binding import quota the welfare maximizing number of firms is finite.

Keywords: Tariff-Rate Quota, Import, Contest, Oligopoly, Oligopsony, Trade

JEL Classification: D45, F12, D43

Suggested Citation

Häfner, Samuel and Lengwiler, Yvan, Domestic Purchase Requirement (May 30, 2019). Available at SSRN: https://ssrn.com/abstract=3293534 or http://dx.doi.org/10.2139/ssrn.3293534

Samuel Häfner (Contact Author)

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

Yvan Lengwiler

University of Basel - Faculty of Business and Economics (WWZ) ( email )

Peter Merian-Weg 6
PO Box
Basel, CH-4002
Switzerland
+41 61 267 3369 (Phone)

HOME PAGE: http://wwz.unibas.ch/lengwiler

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