Abstract
This article presents a link between tariff rates and industry structure in a dynamic setting. We examine the role of tariffs on final-goods in a firm’s decision to integrate and collude in the presence of competitive imports. It is shown that, under some conditions, the upstream firm has an incentive to engage in vertical integration to introduce profitably a wholesale price above the world input price while not inducing any intermediate or final good imports. Higher tariffs downstream, even with no tariff protection upstream, make this strategy more profitable, and provide a rationale for a positive relationship between tariff protection and vertical integration, which is observed in some industries.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Alfaro L, Conconi P, Fadinger H, Newman AF (2010) Trade Policy and Firm Boundaries. NBER Working Paper No. 16118
Bond EW, Syropoulos C (2005) Is the Tariff the “Mother of Trusts”? Reciprocal Trade Liberalization with Multimarket Collusion. Vanderbilt University mimeo, Nashville
Chemla G (2003) Downstream competition, foreclosure, and vertical integration. J Econ Manag Strategy 12: 261–289
Davidson C (1984) Cartel stability and tariff policy. J Int Econ 17: 219–237
Feuerstein S (2005) Collusion in industrial economics—a survey. J Ind Compet Trade 5(3): 163–198
Friedman JW (1971) A non-cooperative equilibrium for supergames. Rev Econ Stud 38: 1–12
Fung K-C (1987) Industry structure, antitrust and tariffs. Int J Ind Org 5: 447–456
Hanson GH, Mataloni RJ, Slaughter MJ (2005) Vertical production networks in multinational firms. Rev Econ Stat 87(4): 664–678
Lamoreaux N (1985) The great merger movement in American history, 1895–1904. Cambridge University Press, New York
Levenstein M, Suslow V (2004) Contemporary international cartels and developing countries: economic effects and implications for competition policy. Antitrust Law J 71(3): 801–852
Levenstein M, Suslow V (2006) What determines cartel success? J Econ Literature XLIV (March 2006): 43–95
Mendi P (2009) Backward integration and collusion in a Duopoly model with asymmetric costs. J Econ 96(2): 95–112
Mendi P, Veszteg R (2009) Sustainability of collusion: evidence from the 19th century basque iron and steel industry. Invest Econ 33(3): 385–405
Nocke V, White L (2007) Do vertical mergers facilitate upstream collusion?. Amer Econ Rev 97(4): 1321–1339
Ornelas E, Turner JL (2008) Trade liberalization, outsourcing, and the hold-up problem. J Int Econ 74: 225–241
Spencer B, Jones R (1991) Vertical foreclosure and international trade policy. Rev Econ Stud 58(1): 153–170
Spencer B, Jones R (1992) Trade and protection in vertically related markets. J Int Econ 32: 31–55
Webb S (1980) Tariffs, cartels, technology, and growth in the German steel industry, 1879 to 1914. J Econ Hist 40(2): 309–330
Author information
Authors and Affiliations
Corresponding author
Additional information
We would like to thank a referee and the co-editor Ma Angeles de Frutos for helpful comments and suggestions. We are also grateful for comments from seminar participants at Universidad de Navarra and Universidad de Burgos, as well as participants in the XXX Simposio de Análisis Económico, 33rd EARIE Conference and XXII Jornadas de Economía Industrial. The authors gratefully acknowledge the financial support from the Spanish Ministerio de Educación y Ciencia, Generalitat Valenciana, and FEDER projects ECO2010-20584, SEJ2007-66581/ECON, SEJ2006-10087, and PROMETEO/2009/068. All errors are our own.
Rights and permissions
Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License (https://creativecommons.org/licenses/by/2.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
About this article
Cite this article
Mendi, P., Moner-Colonques, R. & Sempere-Monerris, J.J. Vertical integration, collusion, and tariffs. SERIEs 2, 359–378 (2011). https://doi.org/10.1007/s13209-010-0034-3
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s13209-010-0034-3