Foreign Monopolies and Tariff Agreements Under Integrated Markets
35 Pages Posted: 12 Aug 2005
Date Written: July 2005
In this paper the optimal policy and the stability of a tariff agreement among the importers of a monopolized good that is sold in an integrated market are studied. To analyze the stability, the tariff agreement formation is modelled as a two-stage game. In the first stage each importer decides whether or not to sign the agreement and in the second stage the signatories and non-signatories choose their tariff whereas the monopoly chooses the quantity or the price. The findings show that the optimal policy of the importers depends on which strategic variable is selected by the monopolist but that, on the contrary, this decision has no effects on the level of cooperation that can be reached by a self-enforcing tariff agreement that, in any case, is very low.
Keywords: Foreign monopolies, self-enforcing tariff agreements, integrated markets, tent-shifting hypothesis, prices versus quantities
JEL Classification: D42, F13
Suggested Citation: Suggested Citation