GEB 3373 Lecture Notes - Lecture 39: Perfect Competition, Oligopoly, Industrial Policy
27 Oct 2016
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Industries, firms, workers may petition governments for relief from foreign competition. May come in form of tariff, quotas, other regulations. > us tariff protection to harley-davidson from japanese imports in 1980s. > us government protection of shipping, which has extended life of industry greater than 40 years. 2009: us tire manufacturers petitioned & received protection from chinese imports in form of 35% tariff. Study from peterson institute estimates tariffs cost us economy billion. > but more expensive tires caused by tariffs -> consumers had less money to spend on other goods -> drop in demand -> negative impact on retail employment -> loss of 3,731 jobs. Overall welfare: -2,531 jobs; higher tire prices. Most economists believe that government interventions discussed previously ultimately harm economy. But, those claims made based on assumption that markets operate under perfect competition. Perfect competition is rare in real world. Strategic trade theory: developed in 1980s to apply to oligopolistic markets.
