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Global supply chain networks and tariff rate quotas: equilibrium analysis with application to agricultural products

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Abstract

In this paper, we develop a global supply chain network model in which profit-maximizing firms engage in competition in the production and distribution of products in the presence of quantitative trade policy instruments in the form of tariff rate quotas. Tariff rate quotas are two-tiered tariffs, in which a lower in-quota tariff is applied to the units of imports until a quota or upper bound is attained and then a higher over-quota tariff is applied to all subsequent imports. They are utilized to protect domestic producers in the case of a wide range of products, from agricultural ones to fabrics and even steel, and can be challenging to formulate. We construct the governing set of novel equilibrium conditions associated with the product flows and Lagrange multipliers, which correspond to quota rent equivalents, and derive the variational inequality formulation. Qualitative properties are presented along with an effective algorithm, which is then applied to compute solutions to numerical examples comprising an agricultural product case study on avocados and global trade. This work is the first to model and solve general, competitive supply chain network problems consisting of oligopolistic firms with multiple production sites and demand markets in multiple countries subject to tariff rate quotas.

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Acknowledgements

The authors are grateful to the two anonymous reviewers and to the Editor for helpful comments and suggestions on an earlier version of this paper.

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Authors and Affiliations

  1. Department of Operations and Information Management, Isenberg School of Management, University of Massachusetts, Amherst, MA, 01003, USA

    Anna Nagurney & Deniz Besik

  2. Department of Electrical and Computer Engineering, University of Hartford, West Hartford, CT, 06117, USA

    Ladimer S. Nagurney

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  1. Anna Nagurney
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  2. Deniz Besik
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  3. Ladimer S. Nagurney
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Correspondence to Anna Nagurney.

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Nagurney, A., Besik, D. & Nagurney, L.S. Global supply chain networks and tariff rate quotas: equilibrium analysis with application to agricultural products. J Glob Optim 75, 439–460 (2019). https://doi.org/10.1007/s10898-019-00794-x

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