The number of firms, international product differentiation and an import tariff

Abstract

By using an n-firm Cournot model, this article examines the relationships among the number of domestic and foreign firms, the product differentiation between the domestic and foreign firms and an import tariff. It is shown that the relative number of domestic and foreign firms as well as the degree of product differentiation between the domestic and foreign firms indeed affects the level of the tariff on imports. Furthermore, whether or not an increase in product differentiation between the domestic and foreign firms reduces the level of the import tariff is dependent on the relative number of domestic and foreign firms.