The Optimal Tariff Policy and Trade Competitiveness with Endogenous Timing in a Differentiated Duopoly
The Optimal Tariff Policy and Trade Competitiveness with Endogenous Timing in a Differentiated Duopoly

Summary/Abstract: Tariff is an effective means to protect domestic enterprises and improve the competitiveness of domestic products. This paper constructs a differentiated duopoly model considering endogenous timing to investigate the tariff policy and the impact of product differentiation on the equilibrium results. The conclusions are presented by analyzing the observable two-period delay game as follows. In quantity competition, the welfare-maximizing government sets the tariff level under the home-leading Stackelberg equilibrium, which is contained in the choices of the two firms in the subsequent observable delay game. In price competition, the Bertrand equilibrium is best for the government. However, either of the two Stackelberg equilibria is optimal in observable delay game. It suggests that adjusting the tariff level cannot sufficiently encourage the firms to adopt the welfare-maximizing duopoly determinately. Moreover, increasing product differentiation enhances the home social welfare in homeleading Stackelberg competition but reduces consumer surplus in Bertrand competition.

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