Allocating Tariff-Rate Quotas: The Case of Domestic Purchase Requirement
40 Pages Posted: 19 Dec 2018 Last revised: 28 Feb 2021
Date Written: May 27, 2020
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 corresponds to 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: Suggested Citation