The objective of this paper is to integrate trade policy with spatial pricing theory. Specifically, the present paper goes a step beyond the prior literature by deriving optimal tariffs under two pricing schemes: f.o.b. mill pricing and SPD adopted by a foreign monopolist under the condition that the market radius is treated as either an endogenous or an exogenous variable. It subsequently demonstrates that with a linear individual demand, the optimal tariffs are the same regardless of whether the foreign monopolist charges mill or discriminatory pricing if its market radius is treated as exogenous. Moreover with an endogenous market radius and in the absence of tariff policy, the monopolist employing SPD will produce larger output, make a higher profit, and lead to lower consumer surplus and domestic welfare than if he employs mill pricing. SPD is beneficial to the foreign monopolist, but bad for the domestic country. However, the foreign monopolist is worse off if he adopts spatially discriminatory pricing policy. This seems to suggest that tariff policy can be used to switch the firm's pricing strategy from discriminatory pricing to mill pricing.
Relation:
產業經濟學術研討會論文集=Proceedings of Industrial Economics Conference，20頁
