Postprint version. Published in International Journal of Industrial Organization, Volume 13, March 1, 1995, pages 67-87. Copyright © 1995 Elsevier. The definitive version is available at http://dx.doi.org/10.1016/0167-7187(94)00443-6.
NOTE: At the time of publication, the author Eric Fisher was not yet affiliated with Cal Poly.
This paper examines the effects of tariffs on price setting duopolists selling a homogeneous product. The producers cannot segment geographically distinct markets. It provides a complete characterization of the equilibrium (mixed) strategies and analyzes the pattern of competition for different tariffs. If a country raises its tariff, the profits of both producers increase, although the protected firm typically benefits more than its foreign counterpart. Growth in one market may reduce the profits of the firm located in the other market.