THE EFFECTS OF VERTICAL MARKETS ON TRADE-POLICY REFORM

Typically. analysis of trade liberalization ignores the impact that in termediate stages in the production and distribution system may have o n the pass-through of changes in tariffs to final goods' prices. Using a model of a multi-stage system, this paper shows that both the numbe r of vertical stages and the degree of imperfect competition at any sp ecific stage can affect the degree of tariff pass-through. Simulation of the model with respect to recent changes in the European Union bana na regime suggests that ignoring vertical market structure is likely t o over-estimate the benefits to consumers of trade liberalization.