An Analysis of the MFN Clause Under Asymmetries of Cost and Market Structure

13 Pages Posted: 25 Jan 2005

See all articles by Kamal Saggi

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics

Halis Murat Yildiz

Ryerson University - Economics and Management Science

Abstract

We conduct a welfare comparison of MFN and tariff discrimination in an oligopoly model of trade between two exporting countries and one importing country. While MFN dominates tariff discrimination from a world welfare perspective when exporting countries are asymmetric with respect to either cost or market structure, such need not be the case when both types of asymmetries co-exist. In particular, when high-cost exporters are merged and the cost disadvantage of the merged unit relative to competing firms is of intermediate magnitude, tariff discrimination can be welfare preferred to MFN (even when the average tariff is actually lower under MFN).

JEL Classification: F13, F12

Suggested Citation

Saggi, Kamal and Yildiz, Halis Murat, An Analysis of the MFN Clause Under Asymmetries of Cost and Market Structure. Available at SSRN: https://ssrn.com/abstract=654077

Kamal Saggi (Contact Author)

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-3274 (Phone)
214-768-1821 (Fax)

Halis Murat Yildiz

Ryerson University - Economics and Management Science ( email )

350 Victoria Street
Toronto, Ontario M5B 2K3
Canada

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