Optimal Tariff Policy under Incomplete Demand Information

초록

This paper adds incomplete information to the basic model of Brander-Spencer(1984). That is, it examines the effects of demand-based informational asymmetries on a national government's tariff. It is shown that the usual rent-extracting effect of the import tariff is strengthened in the presence of incomplete information. Under an incentive compatible tariff scheme, the optimal tariff must be adjusted upwards to prevent the foreign monopolist from declaring a low demand and thus it is usually higher levels than full-information counterparts. The gap between an adjusted tariff and full-information counterparts reflects an amount that the domestic government recaptures some of the monopoly rents the foreign firm is extracting from his private information about the domestic demand. This implies that the presence of incomplete information provides a new rationale for strategic and rent extracting tariffs against a foreign monopolist like multinational enterprise. This paper complements an existing literature on the strategic trade policy in terms of incomplete information.

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