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Corresponding Author:
Chien- Hui Lee, Department of International Business, National Kaohsiung University of Science and Technology, Taiwan, R.O.C.

Coauthors:
Jen-Yao Lee, Department of International Business, National Kaohsiung University of Science and Technology, Taiwan, R.O.C.
Leonard F.S. Wang, Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan, China

Foreign Ownership and Optimal Discriminatory Tariffs under Oligopolistic Competition

Volume 74 - Issue 1, February 2021
(pp. 97-114)
JEL classification: D43, F12, F13
Keywords: Foreign Ownership, Discriminatory Tariffs, Oligopolistic Competition

Abstract

In this paper, we explore the trade policy issue incorporating foreign ownership from importing country into the export competition model to see how it affects the configuration of discriminatory tariff rate. We show that 1. When the portion of exporting firm’s equities owned by domestic investors is symmetric, the optimal trade policy may be an import subsidy and the importing country will provide a higher subsidy on the exporting firm with a lower cost of production; and 2. When the portion of equities of lower marginal cost country owned by domestic investors is sufficiently high in asymmetric equilibrium, the importing country will impose a lower tariff on the exporting firm with a lower cost of production without the production efficiency improvement, while a tariff will further decrease or turn out to be a subsidy with the production efficiency improvement.

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Institute for International Economics of the Genoa Chamber of Commerce

Institute for International Economics
of the Genoa Chamber of Commerce