The effect of quantitative restrictions in oligopolistic markets is shown to depend on whether imports are substitutes or complements for domestic products. In the former case, they have profound effects even when set at free trade levels because they impede the ability of the foreign firm to compete in the domestic market, thereby acting to facilitate collusion and raise prices and profits. For this reason, tariffs and quotas are fundamentally non-equivalent with substitute goods. When goods are complements, a voluntary export restriction (VER) at the free trade level has no effect, and tariffs and quotas are equivalent.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics