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Optimal Tariffs with Endogenous Entry Mode: Uniform Versus Discriminatory Tariffs

  • Tsaur-Chin Wu , Chin-Ho Lin and Chia-Jen Chang EMAIL logo
Published/Copyright: July 7, 2025
The B.E. Journal of Economic Analysis & Policy
From the journal The B.E. Journal of Economic Analysis & Policy Volume 25 Issue 4

Abstract

This paper is the first to examine the welfare impact of two tariff regimes when firms’ entry mode is endogenously determined via export or foreign direct investment (FDI) under a three-country, two-firm model. First, both uniform and discriminatory tariffs reveal an asymmetrical entry mode, where the high (low)-cost firm prefers export (FDI) and vice versa. Second, if both high and low-cost firms choose export under uniform tariffs but the high (low)-cost firm chooses export (FDI) under discriminatory tariffs, the importing country prefers uniform tariffs, and global welfare is higher with uniform tariffs. Third, if the high (low)-cost firm chooses FDI (export) under uniform tariffs but export (FDI) under discriminatory tariffs, the importing country prefers uniform tariffs, and global welfare is greater with discriminatory tariffs.

Keywords: uniform tariff; discriminatory tariff; foreign direct investment
JEL Classification: D43; F13; H21
Corresponding author: Chia-Jen Chang, Department of Public Affairs and Civic Education, National Changhua University of Education, Changhua 500, Taiwan, E-mail: 

Appendix A: Comparison of Tariff Rates Under Different Tariff Regimes

Firstly, compare the tariff rates under different firms’ entry modes under a uniform tariff regime. Based on (4b), (5b), and (6b), we obtain the following.

(1-1) t U e e − t U e f = 14 + 29 c 1 88 > 0 ,

(1-2) t U f e − t U e f = 9 c 1 11 > 0 ,

(1-3) t U e e − t U f e = 14 − 43 c 1 88 .

Combining equations (1-1)–(1-3), it is evident that when 0 < c 1 < 14/43, t Uef  < t Ufe  < t Uee ; whereas when 14/43 < c 1 < 2/5, t Uef  < t Uee  < t Ufe .

Next, under a discriminatory tariff regime, compare the tariff rates under different firms’ entry modes. Based on (3b), (5b), and (6b), we obtain the following.

(2-1) t 1 D e e − t 2 D e e = − c 1 2 < 0 , t 1 D e e − t D f e = 14 − 65 c 1 88 ,

(2-2) t 1 D e e − t Def = 7 2 + c 1 88 > 0 , t 2 D e e − t D f e = 7 2 − 3 c 1 88 > 0 ,

(2-3) t 2 D e e − t Def = 14 + 51 c 1 88 > 0 , t D f e − t Def = 9 c 1 11 > 0 .

Combining equations (2-1)–(2-3), it can be known that when 0 < c 1 < 14/65, t Def < t D f e < t 1 D e e < t 2 D e e ; whereas when 14/65 < c 1 < 1/2, t Def < t 1 D e e < t D f e < t 2 D e e .

Finally, the optimal tariff differences are compared under a uniform and discriminatory tariff when firms adopt the (Export, Export) entry mode.

(3-1) t U e e − t 1 D e e = c 1 4 > 0 , t U e e − t 2 D e e = − c 1 4 < 0 .

From Equation (3-1), it is known that t 1 D e e < t U e e < t 2 D e e . Combining Equations (1-1)–(3-1), it can be seen that when 0 < c 1 < 14/65, t Def = t U e f < t D f e = t U f e < t 1 D e e < t U e e < t 2 D e e ; when 14/65 < c 1 < 14/43, t Def = t U e f < t 1 D e e < t D f e = t U f e < t U e e < t 2 D e e ; when 14/43 < c 1 < 2/5, t Def = t U e f < t 1 D e e < t U e e < t D f e = t U f e < t 2 D e e .

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Supplementary Material

This article contains supplementary material (https://doi.org/10.1515/bejeap-2025-0114).

Received: 2024-07-24
Accepted: 2025-06-15
Published Online: 2025-07-07

© 2025 Walter de Gruyter GmbH, Berlin/Boston

Articles in the same Issue

  1. Frontmatter
  2. Research Articles
  3. Payment for Environmental Services and Environmental Tax Under Imperfect Competition
  4. Disclosure of R&D Knowledge with Cross-Ownership in a Mixed Duopoly
  5. Optimal Tariffs with Endogenous Entry Mode: Uniform Versus Discriminatory Tariffs
  6. What Happens When We Become Age 18? SNAP Work Requirement and SNAP Participation
  7. Hiring Subsidies for Low-Educated Unemployed Youths are Ineffective in a Tight Labor Market
  8. The Impact of Medical Cannabis Laws on Commercial Health Insurer Individual Market Premiums, Claims, and Profitability
  9. Addictive Treatment
  10. Complement or Substitute? Punishment and Self-Interested Enforcement
  11. Gender Gaps in Different Assessment Systems: The Role of Teacher Gender
  12. Hiring Biased Managers: Kant vs. Nash
  13. College Expansion and Heterogeneous College Premiums: Evidence from the Marginal Treatment Effect in China
  14. The Effects of Hiring Credits on Firms’ Dynamics: A Synthetic Difference-in-Differences Evaluation
  15. Letter
  16. Environmental Taxes Versus Subsidies with Unionized Labor Markets. A Note on the Role of Wage Setting Structure
https://doi.org/10.1515/bejeap-2025-0114
Keywords for this article
uniform tariff; discriminatory tariff; foreign direct investment

Articles in the same Issue

  1. Frontmatter
  2. Research Articles
  3. Payment for Environmental Services and Environmental Tax Under Imperfect Competition
  4. Disclosure of R&D Knowledge with Cross-Ownership in a Mixed Duopoly
  5. Optimal Tariffs with Endogenous Entry Mode: Uniform Versus Discriminatory Tariffs
  6. What Happens When We Become Age 18? SNAP Work Requirement and SNAP Participation
  7. Hiring Subsidies for Low-Educated Unemployed Youths are Ineffective in a Tight Labor Market
  8. The Impact of Medical Cannabis Laws on Commercial Health Insurer Individual Market Premiums, Claims, and Profitability
  9. Addictive Treatment
  10. Complement or Substitute? Punishment and Self-Interested Enforcement
  11. Gender Gaps in Different Assessment Systems: The Role of Teacher Gender
  12. Hiring Biased Managers: Kant vs. Nash
  13. College Expansion and Heterogeneous College Premiums: Evidence from the Marginal Treatment Effect in China
  14. The Effects of Hiring Credits on Firms’ Dynamics: A Synthetic Difference-in-Differences Evaluation
  15. Letter
  16. Environmental Taxes Versus Subsidies with Unionized Labor Markets. A Note on the Role of Wage Setting Structure
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