Tariffs as Signals of Uncompetitiveness
REVIEW OF INTERNATIONAL ECONOMICS
Posted: 4 Apr 1997
In this paper, a domestic and a foreign firm compete as Cournot duopolists in the domestic market. The foreign firm has incomplete information about the costs of the domestic firm, but the domestic government and the domestic firm are completely informed. It is shown that the domestic government can use its tariff to signal about the costs of the domestic firm. In the separating equilibrium, the domestic government signals the uncompetitiveness of the domestic firm by setting a lower tariff than is optimal under complete information.
JEL Classification: F12, F13, L13
Suggested Citation: Suggested Citation