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An analysis of the MFN clause under partial ownership

Hong-Ren Din

Kuang-Cheng Andy Wang

Wen-Jung Liang

Working paper

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   This paper conducts a welfare comparison of MFN and tariff discrimination in an oligopoly model of trade between two importing countries and one domestic country. It is shown that the optimal discriminatory tariff schedule for the domestic country is to impose lower (higher) tariff on the more (less) efficient importing firm. Moreover, we show that MFN dominates tariff discrimination from a global world welfare perspective when firm A holds a relative small equity interest in firm B. In particular, when the equity share £_A is larger, tariff discrimination can be welfare preferred to MFN. We also present that consumer surplus and firm A prefer a uniform tariff regime, whereas firm B prefer a discriminatory tariff regime the equity share £_A is small. Consumer surplus and firm A prefer a discriminatory tariff regime, whereas firm B prefer a uniform tariff regime the equity share £_A is larger.

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