Optimum-Welfare and Maximum-Revenue Tariffs in Vertically Related Markets

DOI: 10.4236/me.2014.55055   PDF   HTML     2,410 Downloads   3,144 Views   Citations

Abstract

This paper compares the optimum-welfare tariffs with the maximum-revenue tariffs in a model of vertically related markets characterized by Cournot competition. It shows that the optimum-welfare tariff on the intermediate good exceeds the maximum-revenue tariff if the home intermediate-good firm is much more cost-competitive than the foreign intermediate-good firm. Further, the optimum-welfare tariff on the final good exceeds the maximum-revenue tariff if the home intermediate-good firm is significantly inefficient compared to the foreign intermediate-good firm. It is less likely that the optimum-welfare tariffs on the intermediate and the final good, respectively, exceed the maximum-revenue tariffs on the intermediate and the final good in the presence of vertical trade structures than in their absence.

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Kawabata, Y. (2014) Optimum-Welfare and Maximum-Revenue Tariffs in Vertically Related Markets. Modern Economy, 5, 589-597. doi: 10.4236/me.2014.55055.

Conflicts of Interest

The authors declare no conflicts of interest.

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