Uniform versus Discriminatory Tariffs in Increasing Marginal Costs and Endogenous Competition

By allowing exporters to produce under asymmetric increasing marginal costs, we investigate the impact of tariff discrimination when considering exporters' endogenous choice of competition mode. Discriminatory tariffs lead to Cournot competition, whereas uniform tariffs lead to diverse modes of competition. The discriminatory (uniform) tariffs can obtain Pareto superiority from the perspective of social and global welfare if product differentiation is either high or low (intermediate). Contrast to previous results, since the importing country tends to impose a lower (higher) tariff on the efficient (inefficient) exporter, both exporters' preference for tariff regime varies for any degree of product differentiation. Thus, with increasing marginal costs for any degree of product differentiation, there is a possibility that the preferences for tariff regimes change in the same direction for the exporters' profits, social and global welfare