THE PROCOMPETITIVE EFFECTS OF TRADE-POLICY REFORM IN A SMALL, OPEN-ECONOMY

The general equilibrium effects of a tariff in the presence of product differentiation, increasing returns to scale, and non-cooperative, st atic firm behavior are explored. Optimal markups are treated as endoge nous. The subsequent 'procompetitive effects' of tariff reform are sys tematically related to the nature of the game played by firms. Further more, markups are not always increasing in the tariff. This depends on the entry assumptions, of which three are considered: no entry, entry , and domestic entry with a fixed number of total varieties. For these three cases, utility is shown to be, respectively: increasing, ambigu ous, and decreasing in the tariff.