Maximum-revenue tariff with different roles in a price-setting competition

Published also at Lecture Notes in Engineering and Computer Science

In this paper, we study an international duopoly market where firms set prices. The model has two stages. In the first stage, the home government chooses an import Tariff to maximize the revenue. Then, the firms engage in a price-setting competition. We study three different roles: (i) simultaneous decisions (Bertrand model); (ii) sequential decisions with home firm as the leader; and (iii) sequential decisions with home firm as the follower. We compare the results obtained in the three different ways of moving on the decisions make of the firms.