Pareto Improving Tariff Reduction Scheme in an Imperfectly Competitive Model of Trade: A Three-Country Case

Abstract

In this paper we develop a three-country model of international trade with imperfectly competitive good, which consists of two developed countries and one developing country. We analyze comprehensively the effects of a tariff change on the supplies of imperfect competitive good and on the welfare of each country in the most general framework, i. e., demand functions as well as cost functions are non-linear. One of the important results of the analyses is that a reduction in a developed country's tariff can increase the world welfare as a whole in the case of decreasing marginal cost.