Optimal Tariffs and Subsidies and Changes in Market Structure



The paper presents a unified treatment of optimal trade policy for a small country. The well-known results for duopoly and competitive markets emerge as benchmark cases of the authors’ model. In addition, it is shown that changes in market structure have nonmonotonic effects on optimal tariffs. The results suggest that the recent reduction of tariffs in eastern Europe is consistent with welfare-maximizing trade policy in response to the substantial changes in the market structure of these countries.