BACKFIRING TARIFFS IN VERTICALLY RELATED MARKETS

This paper examines the effects on the domestic economy of domestic ta riffs imposed on an intermediate good or a final good in vertically re lated markets which are characterized by Cournot oligopolies. Tariffs could lead a foreign firm to enter or exit from the domestic final-goo d market. Some of our results are counter-intuitive. It is particularl y shown that tariffs on the intermediate good which induce the entry c ould harm domestic intermediate-good producers and/or benefit domestic final-good producers; and that tariffs on the final good which induce the exit could harm both domestic intermediate-good and final-good pr oducers.