Technological Upgrading under Tariffs and Equivalent Quotas*

This paper compares the effect of tariffs and that of equivalent quotas on the domestic firm’s production technology choice when it competes with a foreign firm in the domestic market. It is shown that under Bertrand price competition, the ranking of technology under tariff protection and quota protection is ambiguous, as it depends on the relative strength of the strategic vs output effects. The equivalent quota regime can generate a higher‐technology (implying a lower production cost) choice than the tariff regime if the strategic effect dominates the output effect. In contrast, the technology level is necessarily higher under the tariff regime than under the equivalent quota regime when the firms engage in Cournot quantity competition.     

Import sensitive products and perverse tariff‐rate quota liberalization

Abstract This paper shows that a Tariff‐Rate‐Quota's (TRQ) minimum access expansion can perversely trigger domestic price increases. Often, TRQs have prohibitive over‐quota tariffs to mimic import quotas in providing minimum market access. In the WTO's Doha Round, it is likely that countries using TRQs will avoid aggressive tariff reductions if they increase the quota portion of TRQs. We show that when the import price lies between the unit cost of production and the price received by domestic upstream firms, an increase in import quota as a share of domestic production may cause an increase in the domestic retail price.     

Ranking the optimum tariff and the maximum revenue tariff in vertically related markets

This paper firstly shows that in a vertically related industry with either domestic upstream monopolist or foreign upstream monopolist, when the upstream firm adopts uniform input pricing, the optimum-welfare tariff is higher than the maximum-revenue tariff, if the number of foreign competitors is sufficiently large. Secondly, when domestic upstream monopolist adopts discriminatory input pricing, the maximum-revenue tariff is higher than the optimum-welfare tariff. Thirdly, when foreign upstream monopolist adopts discriminatory input pricing, the optimum-welfare tariff will exceed the maximum-revenue tariff if the sizes of domestic and foreign firms become more unequally distributed.     

Tariffs vs Quotas in a Model of Trade with Capital Accumulation*

This paper examines the equivalence among price‐modifying and quantity‐fixing international trade policies in a differential game. We employ two well‐known capital accumulation dynamics for firms, due to Nerlove and Arrow and to Ramsey, respectively. We show that, in both cases, open‐loop and closed‐loop Nash equilibria coincide. Under the former accumulation the tariff‐quota equivalence holds, while, in general, it does not under the latter. Moreover, in the Ramsey model, the country setting the trade policy (weakly) prefers a quantity‐equivalent import quota to the adoption of the tariff. These results are not a consequence of the equilibrium concept we adopt (with and without market power), but directly follow from the interplay between market power and the properties of accumulation dynamics.     

A welfare analysis of tariffs and equivalent quotas under demand uncertainty: Implications for tariffication

Under market demand uncertainty, we show that quotas can result in a welfare advantage over tariffs for an importing country despite that its government does not capture any quota rents. Specifically, the conditions under which an equivalent quota yields higher expected welfare than a tariff are shown to depend on a set of economic variables. These variables include the initial tariff rate, the relative efficiency in production between home and foreign firms, the probability distribution of random demand shocks that make the quota binding or non-binding under uncertainty, as well as the variance of the stochastic market demand. The analysis of this paper has welfare implications for tariffication.     

State Trading and Tariff Rate Quotas: The Case of Korea's Rice Imports

This paper analyzes the effects of trade liberalization of tariff‐rate quotas under import “state trading enterprises” (STEs) in agriculture. An analytical framework is provided to determine the importance of which instrument is binding under competition (the in‐quota or out‐of‐quota tariff or the quota) and under the initial STE equilibrium. It also depends on whether or not the STE controls both the domestic market prices and owns/controls the import quota (and whether it is obligated to fill the quota or not). An empirical example of the rice STE in South Korea has simulations showing that an increase in imports can be achieved through a moderate expansion of the quota or a decrease in the out‐of‐quota tariff to the level where it becomes binding. However, a significant level of quota expansion induces the STE to switch to the autarky solution and social welfare declines.     

WHO BENEFITS FROM PRICING REGULATIONS WHEN ECONOMIC SPACE MATTERS?

Reinterpreting Hwang‐Mai (AER, 1990) by both simplifying and generalizing their analysis in terms of two key demand parameters representing income and market size, we probe the welfare effects of spatial price discrimination to determine how robust the previous welfare findings in the literature are. Endogenous location matters when a monopolist chooses asymmetric location under different pricing schemes. If he/she remained at the same location, outcomes of fixed and endogenous location models must be analytically the same. Endogenous and different location changes outcomes radically. When non‐discriminatory pricing regulations benefit the poor, different transportation burdens mean that the rich become poor, even worse off than the ex‐poor, and the society becomes worse off accordingly.     

STRATEGIC EFFECTS OF THREE‐PART TARIFFS UNDER OLIGOPOLY

The distinct element of a three‐part tariff (3PT), compared with linear pricing (LP) or a two‐part tariff, is its quantity target within which the marginal price is zero. This quantity target instrument enriches the firm's strategy set in dictating the competition to a specific level, even in the absence of a usual price discrimination motive. With general differentiated linear demands, the competitive effect of a 3PT in contrast to LP depends on the degree of substitutability between products: Competition is intensified when two products are more differentiated, yet softened when two products are more substitutable.     

Tariffs Versus Quotas in a Differentiated Products Market: A Conjectural Variations in Prices Approach

This paper examines the (non)equivalence of a tariff and a quota set at the level of imports generated by the tariff using a conjectural variations in prices model. It extends previous studies by considering a variety of firm behavior patterns in the tariff equilibrium and when the imports and the domestic products are complements. The results obtained encompass most of the previous results. In addition, for complements, replacing a tariff with a quota has opposite effects on the prices of two products. Also, the prices under tariffs and quotas are not necessarily equivalent for complements. [F13]     

买方抗衡势力与制造商定价决策

本文研究了买方抗衡势力的存在对上游制造商定价决策的影响,讨论了制造商在不同定价形式（线性定价、两部收费制和转售价格维持（RPM））之间的选择问题,并构建了两阶段动态博弈模型,引入买方抗衡势力,比较分析了制造商在零售商具有和不具有买方抗衡势力两种情况下,制造商最优定价形式的选择。研究发现当零售商不具有买方抗衡势力时,制造商选择两部收费制和RPM是无差异的,都能使上游制造商获得相等的最优利润;当零售商具有买方抗衡势力时,对于上游制造商来说两部收费制优干RPM,RPM又优于线性定价。此外,本文还发现存在一个由抗衡势力和零售商替代程度决定的临界条件,当满足这一条件时,两部收费制是上游的最优选择;一旦这一条件不满足时,RPM就成了上游的最优选择。     

Tariff Revenue Competition in a Free Trade Area: The Case of Asymmetric Large Countries

The striking result has been shown by Richardson that tariff revenue competition between two symmetric member countries of a free trade area (FTA) results in complete elimination of external tariffs if there exists a pure‐strategy Nash equilibrium at all. Richardson also conjectures without building a model that if member countries are asymmetric in market size, there exists a pure‐strategy Nash equilibrium in which both countries set positive external tariffs. We explicitly extend his tariff competition model into the case of asymmetric FTA member countries, and confirm his conjecture. We also show that there exists a mixed‐strategy Nash equilibrium in the case of symmetric countries.     

On the Equivalence of Ad Valorem Tariffs and Specific Tariffs under Duopoly*

Using a quantity conjectural variation model, this paper examines whether an ad valorem tariff and a specific tariff are equivalent under duopoly. We show that if the average per‐unit import tax is the same for the two tariffs, domestic output will be smaller while foreign output will be larger under an ad valorem tariff. We further show that for any value of a specific tariff, there is a Pareto‐superior ad valorem tariff for all values of conjectural variation except in the case of perfect competition where the two tariffs are equivalent.     

TO REGULATE OR TO DEREGULATE? THE ROLE OF DOWNSTREAM COMPETITION IN UPSTREAM MONOPOLY VERTICALLY LINKED MARKETS

This paper attempts to cast light to the effect of monopoly regulation in Cournot markets compared to its effect in Bertrand markets. To this purpose, we use a simple model of a vertically linked market, where an upstream regulated natural monopoly is trading via two‐part tariff contracts with a downstream duopoly. Combining our results to those of the existing literature on deregulated markets, we argue that when the downstream competition is in prices, efficiency dictates regulating the monopoly with a marginal cost based pricing scheme. However, this type of regulation leads to significant welfare loss, when the downstream market is characterized by Cournot competition.     

“递进”买方势力视角下两部收费制的规制机理研究--兼论政府反垄断部门应对策略

近年来,两部收费制策略引发的反垄断案件频发,下游买方势力的逐渐增强使得纵向控制规制问题变得更加错综复杂。以往研究对买方势力动态变化影响企业策略性决策以及弱化上游市场竞争的问题关注不足。基于此,构建由上游在位者、潜在进入者和下游零售商组成的纵向产业链模型,以下游零售商买方势力的递进变化为切入点,深度剖析两部收费制策略的内在规制机理。结果表明:当下游企业没有买方势力或者具有较弱的抗衡势力时,两部收费制策略从本质上并未弱化上游市场竞争。然而,一旦潜在进入者无法打破在位者建立的进入壁垒,在位者便会充分利用其市场支配地位实施转售价格维持、搭售等一系列纵向控制手段,进而弱化上游市场竞争,以期实现“一家独大”。当下游企业主导交易时,在满足一定条件下,通道费合约会产生排他效应,其弱化上游竞争的程度有限。因此,政府反垄断部门制定规制政策应充分考虑企业纵向控制和逆纵向控制行为。     

OPTIONAL REAL-TIME PRICING OF ELECTRICITY FOR INDUSTRIAL FIRMS

Abstract. This paper proposes a pricing mechanism, optional real-time pricing (RTP), with day-ahead hourly prices, that exploits the potential offered by a competitive wholesale power market. When an electric utility offers the option to its industrial customers, the retail prices are based on an existing Hopkinson tariff and expectations as to the wholesale market's next-day hourly spot prices. The proposed RTP mechanism is Pareto-superior to the tariff in that it assures both the utility and the customer of profits that will be at least as great as under the tariff.     

Mixed Competition and Patent Licensing

This paper studies the patent licensing decision of an insider patentee when two firms engage in a mixed (Cournot–Bertrand or Bertrand–Cournot) competition where one firm adopts the quantity strategy while the other uses the price strategy and vice versa. If either the fixed fee or royalty is applied, then the licensor prefers the fixed fee when the licensor takes the quantity strategy, while the licensee uses the price strategy (Cournot–Bertrand). If the two‐part tariff is applied, then the two‐part tariff is more likely to be adopted by the licensor under Cournot–Bertrand than under Bertrand–Cournot competition.     

THE WELFARE PERFORMANCE OF SEQUENTIAL PRICING MECHANISMS*

Consumers are commonly required to subscribe to particular tariff options before uncertainty regarding their future purchases gets resolved. Since the general comparison of welfare performance of different pricing mechanisms is ambiguous, this article empirically evaluates the expected welfare associated with standard nonlinear pricing and optional tariffs by using information directly linked to the type of individual consumers. Results show that tariffs composed of nonlinear options do not necessarily outperform simpler pricing strategies in terms of expected profits. Furthermore, evidence suggests that a menu of optional two‐part tariffs dominates any other pricing strategy from an expected welfare perspective.     

Strategic trade policy under asymmetric information with screening

The design of strategic rent-extracting trade policies requires information that may be private, such as the cost structure of an industry or parameters of the demand function. As a consequence, under asymmetric information, the design of these policies is problematic. We propose screening menus consisting of different instruments (tariff vs. quota) designed to solve this informational issue. We first use a simple model that examines a Cournot duopoly between a domestic firm and a foreign firm with linear demand and cost functions, with both firms supplying a homogeneous good on the domestic market. In this scenario, if the government does not have information regarding the demand parameter, which is known by both firms, a menu consisting of a rent-extracting tariff for a low demand parameter and a rent-extracting quota for a high demand parameter maximizes the government's objective function. This menu leads the domestic firm to reveal private information. We then generalize this framework to a scenario with imperfect information regarding the firms' marginal cost. Finally, we discuss the issue of quotas generating public revenues and study the case of a menu consisting of a tariff and a free quota.     

Bertrand versus Cournot competition in a downstream mixed oligopoly with foreign ownership

Focusing on foreign ownership in the private firm, we examine the Cournot-Bertrand comparison in a mixed oligopolistic market with vertical market structure. We have found that if public and private firms were charged with uniform price for their inputs, then Cournot-Bertrand ranking in market outcomes confirms those obtained by Ghosh and Mitra (2010). This implies that under uniform pricing in the upstream sector, the vertical market structure does not have substantial influences on Cournot-Bertrand ranking. However, if discriminatory pricing is adopted, firm's profits, output, and social welfare are often reversed to those obtained from uniform pricing in the upstream sector. Given the closeness of products, if the share of foreign ownership is sufficiently low, social welfare in Cournot competition can exceed that of Bertrand competition, contrasting with the standard welfare ranking that Bertrand welfare is strictly higher than Cournot. This implies that Cournot competition can be more socially desirable than Bertrand in mixed oligopoly with vertical market structure if discriminatory pricing scheme is adopted by foreign upstream monopolists.     

Competitive General Equilibrium with Finite Change and Theory of Policy Making

We visit the non‐equivalence of tariff and quota in higher dimensional finite change trade models when goods outnumber factors of production. Under competitive conditions, exogenous shocks (e.g., exposure to international trade) support the production of only a subset of commodities. If we try to protect some of the vanishing goods, tariff and quota will have different results when a tariff turns out to be a more restrictive policy than a quota, contrary to the conventional wisdom.