Abstract

The analysis of the tariff effects in a model of spatial competition has led to several results quite different from those of the traditional tariff theory: (1) It was found that an imposition of an import duty caused the domestic suppliers to lower their prices instead of raising them. (2) It is possible to determine a system of the optimal protective and revenue tariffs, with the tariff rates depending on exogeneously given geographical parameters. (3) The calculations of welfare effects for the domestic market as a whole show that in the case that a foreign supplier is located near the border, the free trade will cause greater welfare effects than the revenue tariffs, and these, in turn, will lead to stronger welfare effects than the protective tariffs. The opposite is true for the case of a foreign supplier located far away from the border: the protective tariffs will create stronger welfare effects than the revenue tariffs, and these will cause greater welfare effects than free trade.