FOREIGN MONOPOLY AND SELF-ENFORCING TARIFF AGREEMENTS UNDER INTEGRATED MARKETS: PRICES VERSUS QUANTITIES

This paper studies the stability of a tariff agreentent among the importers of a monopolized good that is sold in an integrated market. The tariff agreement formation is modelled as a two-stage game. In the first stage, each importer decides whether or not to sign the agreement, and in the second stage the signatories choose cooperatively their tariffs whereas the non-signatories and the monopoly act in a non-cooperative way. Our findings show that the agreement consists of three countries regardless of whether the monopolist chooses the quantity or the price and the number of importers, provided that the parties to the agreement act as a leader in the second stage of the game.