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Tariffs and Trade Liberalization with Network Externalities |
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Kenji Fujiwara |
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Australian Economic Papers |
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This paper constructs a reciprocal market model of intra-industry trade in network goods to consider the implications of network externalities for an optimal tariff policy and the welfare effects of bilateral tariff reductions. This paper shows that the degree of network externalities nontrivially affects the sign of the Nash equilibrium tariff. The Nash equilibrium tariff is positive as network externality is small; while tariff is negative as network externality is large. Moreover, the tariff is increasing (decreasing) in network externalities as network externality is small (large). They also prove that network externalities amplify the gains from tariff reduction. These results help better understand the implications of trade-related issues in network industries. |
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