TARIFFS AND TRADE LIBERALIZATION WITH NETWORK EXTERNALITIES

Abstract

This paper constructs a reciprocal market model of intra-industry trade in network goods to consider the implications of network externalities for an optimal tari policy and the welfare eects of bilateral tari reductions. We show that the degree of network externalities nontrivially aects the sign of the Nash equilibrium tari. Then, we prove that network externalities amplify the gains from tari reductions. These results help better understand the implications of traderelated issues in network industries.