MONOPOLY AND TRADE-POLICY

This paper derives trade policy rankings for a country trading with a foreign monopoly firm. It characterizes the first-best policy under decreasing monopoly costs, and it demonstrates that a minimum import requirement implements first-best trade only under constant monopoly costs. The paper shows further that a voluntary import expansion eliminates all gains from trading with the monopoly, and that all quotas and voluntary export restraints are equivalent. Finally, it establishes that a price ceiling and a minimum import requirement are equivalent when monopoly costs are constant or decreasing, but that their ranking is ambiguous when costs are increasing.