Tariffs, factor prices, and welfare in a spatial oligopoly

In this paper we derive endogenous tariff rates for a tariff revenue maximizing policy and a welfare maximizing policy (optimal tariff) in a spatial framework. The underlying model is that of a spatial oligopolistic market with domestic and foreign firms. We assess the outcomes of the model for different tariff rates and the free trade situation, the stress being on welfare considerations. Compared to the traditional theory of international trade and tariffs, this approach affords useful insights into the role of firms' locations and transportation costs for profits and consumers' surplus in the case of alternative trade policies.