Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/75727
Authors: 
Gonzales, José Luis Moraga
Viaene, Jean-Marie
Year of Publication: 
2001
Series/Report no.: 
CESifo Working Paper 597
Abstract: 
We study the procompetitive effects of trade policies against a foreign oligopoly in a model of vertical product differentiation. We show that a uniform tariff policy like the Most Favored Nation (MFN) clause is always welfare superior to free trade because of a pure rent-extraction effect. However, a nonuniform tariff policy is, in addition, procompetitive and thus yields a higher level of social welfare. The first best policy typically consists of giving a subsidy to the country producing low quality and levying a tariff on the country producing high quality. Regional Trade Agreements (RTYs) are examples of nonuniform tariff policies. We show that these arrangements yield higher welfare than free trade and, moreover, that a RTA with a low-quality producing country yields larger gains than a RTA with a high-quality producing country.
Subjects: 
endogenous quality
most favored nation (MFN) clause
procompetitive policies
regional trade agreements
Document Type: 
Working Paper

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