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Trade Policy And Time Consistency In An Oligopsonistic World Market
Economic Staff Paper Series
  • Jean-Philippe Gervais, Iowa State University
  • HARVEY E LAPAN, Iowa State University
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This paper investigates the strategic behavior between countries that have purchasing power on the world market for a certain good. Tariffs and quotas are not equivalent protection instruments in this oligopsonistic market. Policy active importers would be better off by colluding and setting their trade instrument cooperatively. In a non-cooperative setting, if production decisions occur before consumption decisions, the ex-ante optimal policy is not time consistent because the ex-post elasticity of the residual foreign export supply curve is lower than the ex-ante elasticity. However, we show that the importers' inability to irrevocably commit to their trade instrument may be welfare superior to the precommitment solution. The negative welfare implication of noncooperative behavior may be balanced off by the welfare effect of the ex-post elasticity. A numerical example is proposed to provide insights on the theoretical results.
Citation Information
Jean-Philippe Gervais and HARVEY E LAPAN. "Trade Policy And Time Consistency In An Oligopsonistic World Market" (1998)
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