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Tariffs Ranking in Mixed Oligopoly with Revenue Constraint  [PDF]
Leonard F. S. Wang,Jean Wang,Long Tang,Jen-Yao Lee
Economics Research International , 2011, DOI: 10.1155/2011/147357
Abstract: Utilizing linear mixed oligopoly model, this paper explores the magnitude of the maximum-revenue tariff, optimum-welfare tariff, and revenue-constrained optimal tariff that is especially designed for the consideration of the bureaucratic inefficiency. In particular, the tariff ranking issue is examined under both cases of Cournot competition and domestic public leadership. We found that, under Cournot competition, the optimum-welfare tariff is the highest and it is followed by the revenue-constrained optimal tariff while the maximum-revenue tariff is the lowest. But, under Stackelberg public leadership, if the domestic private firms are fewer than the foreign firms, the maximum-revenue tariff becomes the highest and the optimum-welfare exceeds the revenue-constrained optimal tariff. 1. Introduction Whether to apply maximum revenue tariffs or optimum welfare tariffs is interesting and should be deliberated because the tariff revenue is an important income source of a government before building up an efficient tax system. However, a government may adjust its goal from maximum-revenue to optimum-welfare along with economic improvement and the need for fiscal reform. In traditional tariff analyses, Johnson [1] argued that the maximum-revenue tariff is higher than the optimum-welfare tariff because a “large” country could change the terms of trade in order to raise its social welfare. From the strategic trade aspect, Brander and Spencer [2] showed that a government could improve its terms of trade through using tariff as a strategic instrument in an oligopoly market to take a leading position for transferring foreign firm’s revenue to a domestic firm. Collie [3] demonstrated that, in a Cournot duopoly market with linear demand and an asymmetric constant marginal cost, the optimum welfare tariff exceeds the maximum revenue if the domestic and foreign firm’s marginal costs are equal. Larue and Gervais [4] allowed an asymmetric number of domestic and foreign firms and showed that, if the numbers of domestic firms and foreign firms are the same, the maximum-revenue tariff is higher than the optimum-welfare tariff. Clarke and Collie [5] found that, in a Bertrand competition model, the optimum-welfare tariff is higher than the maximum-revenue tariff when the products are highly substitutable. Wang et al. [6] introduced market share delegation in a trade duopoly context and demonstrated that the home government unambiguously imposes a higher optimum-welfare tariff than maximum-revenue one regardless of the form of delegation. Wang et al. [7–9] reexamined the tariff
Tariffs Ranking in Mixed Oligopoly with Revenue Constraint  [PDF]
Leonard F. S. Wang,Jean Wang,Long Tang,Jen-Yao Lee
Economics Research International , 2011, DOI: 10.1155/2011/147357
Abstract: Utilizing linear mixed oligopoly model, this paper explores the magnitude of the maximum-revenue tariff, optimum-welfare tariff, and revenue-constrained optimal tariff that is especially designed for the consideration of the bureaucratic inefficiency. In particular, the tariff ranking issue is examined under both cases of Cournot competition and domestic public leadership. We found that, under Cournot competition, the optimum-welfare tariff is the highest and it is followed by the revenue-constrained optimal tariff while the maximum-revenue tariff is the lowest. But, under Stackelberg public leadership, if the domestic private firms are fewer than the foreign firms, the maximum-revenue tariff becomes the highest and the optimum-welfare exceeds the revenue-constrained optimal tariff.
The Optimum Discriminatory Tariffs under the Cournot-Nash Strategy in International Trade  [cached]
Hui Wen Cheng,Shih-Shen Chen
International Business Research , 2012, DOI: 10.5539/ibr.v6n1p49
Abstract: This paper investigates the optimum ad valorem tariffs under the Cournot competition. There are three situations that exceptions to most-favored-nation (MFN) principle are made within the GATT framework: free trade agreement, ‘safeguard’ actions and escape clause. Hence, the issue of discriminatory tariffs has important policy implications. Most of the literature concerning the discriminatory tariffs assumes that the objective of the government is to maximize their country’s welfare by choosing the appropriate trade policy. We expand welfare-maximizing to loss-minimization model in order to comparing two types of optimum discriminatory tariff ratios. In the loss-minimization model, we assume that the objective of the government is to minimize loss in consumers’ surplus while subject to a minimum target level of tariff revenue. The aim of this paper is to show that the optimum ad valorem tariff ratio between two exporting countries can be unambiguously derived with a linear demand curve and constant marginal costs. We conclude that the welfare-maximizing tariff ratio differs from that of the loss-minimization model or a quasi-Ramsey rule. The Ramsey-like tariff ratio does not depend on the size of the intercept of market demand since its objective function is to minimize the loss in consumers’ surplus. On the contrary, the welfare-maximizing tariff ratio is dependent on the intercept since it is used to measure the total consumers’ surplus. Only when the two foreign producers have the identical marginal cost will they coincide.
Welfare and Revenue Guarantees for Competitive Bundling Equilibrium  [PDF]
Shahar Dobzinski,Michal Feldman,Inbal Talgam-Cohen,Omri Weinstein
Computer Science , 2014,
Abstract: We study equilibria of markets with $m$ heterogeneous indivisible goods and $n$ consumers with combinatorial preferences. It is well known that a competitive equilibrium is not guaranteed to exist when valuations are not gross substitutes. Given the widespread use of bundling in real-life markets, we study its role as a stabilizing and coordinating device by considering the notion of \emph{competitive bundling equilibrium}: a competitive equilibrium over the market induced by partitioning the goods for sale into fixed bundles. Compared to other equilibrium concepts involving bundles, this notion has the advantage of simulatneous succinctness ($O(m)$ prices) and market clearance. Our first set of results concern welfare guarantees. We show that in markets where consumers care only about the number of goods they receive (known as multi-unit or homogeneous markets), even in the presence of complementarities, there always exists a competitive bundling equilibrium that guarantees a logarithmic fraction of the optimal welfare, and this guarantee is tight. We also establish non-trivial welfare guarantees for general markets, two-consumer markets, and markets where the consumer valuations are additive up to a fixed budget (budget-additive). Our second set of results concern revenue guarantees. Motivated by the fact that the revenue extracted in a standard competitive equilibrium may be zero (even with simple unit-demand consumers), we show that for natural subclasses of gross substitutes valuations, there always exists a competitive bundling equilibrium that extracts a logarithmic fraction of the optimal welfare, and this guarantee is tight. The notion of competitive bundling equilibrium can thus be useful even in markets which possess a standard competitive equilibrium.
Envy-Free Pricing in Large Markets: Approximating Revenue and Welfare  [PDF]
Elliot Anshelevich,Koushik Kar,Shreyas Sekar
Computer Science , 2015,
Abstract: We study the classic setting of envy-free pricing, in which a single seller chooses prices for its many items, with the goal of maximizing revenue once the items are allocated. Despite the large body of work addressing such settings, most versions of this problem have resisted good approximation factors for maximizing revenue; this is true even for the classic unit-demand case. In this paper we study envy-free pricing with unit-demand buyers, but unlike previous work we focus on large markets: ones in which the demand of each buyer is infinitesimally small compared to the size of the overall market. We assume that the buyer valuations for the items they desire have a nice (although reasonable) structure, i.e., that the aggregate buyer demand has a monotone hazard rate and that the values of every buyer type come from the same support. For such large markets, our main contribution is a 1.88 approximation algorithm for maximizing revenue, showing that good pricing schemes can be computed when the number of buyers is large. We also give a (e,2)-bicriteria algorithm that simultaneously approximates both maximum revenue and welfare, thus showing that it is possible to obtain both good revenue and welfare at the same time. We further generalize our results by relaxing some of our assumptions, and quantify the necessary tradeoffs between revenue and welfare in our setting. Our results are the first known approximations for large markets, and crucially rely on new lower bounds which we prove for the revenue-maximizing prices.
TRADE, REVENUE AND WELFARE EFFECTS UNDER AN ECONOMIC PARTNERSHIP AGREEMENT BETWEEN BURKINA FASO AND THE EUROPEAN UNION
G.O. Onogwu,C.J. Arene
Russian Journal of Agricultural and Socio-Economic Sciences , 2013,
Abstract: This study estimates the impact on Burkina Faso of eliminating tariffs on imports from the EU under EPAs, considering trade, revenue and welfare effects. At complete elimination of tariffs on all products imports from trade classification sections (TDC 01-13) from the EU. Burkina Faso is likely to experience both welfare gains and losses depending on the values of imports of each trade classification section in question. The overall welfare effect relative to GDP tends to be very small and positive, but potential tariff revenue losses are enormous even when the country has up to fifteen - twenty-five years in which to implement the tariff reductions, unless with scope for tax substitution. EPAs effects are concentrated on those product sections where trade creation outweighs trade diversion such as Animal products, Vegetable products, Animal/Veg. products, Mineral products, and Textiles products. Besides, product sections with the greatest market opportunities for EU suppliers to displace any of the other suppliers, ECOWAS and/or ROW include sections where trade diversion outweighs trade creation effects, such as prepared foodstuffs, product of chemicals, plastics, raw hides & skin, etc. The sensitive products (SPs) to be excluded from tariff removal should include sections in which ECOWAS member nations are suppliers to regional importers so that excluding them as SPs would improve the welfare gain compared to estimates where tariff are removed from those products in which ECOWAS have zero potential. The results at this level of aggregation will provide useful information to the on-going negotiations between ECOWAS and the EU in determining Burkinabe's products to be exempted from tariff removal during EPAs based on the severity of the effects on varied trade classification (TDC) sections, among other considerations.
Profit-Improving Linear Tariffs Pricing in a Vertical Oligopoly  [PDF]
Dong Joon Lee, Sangheon Han, Yuji Ono, Shigetsune Yamoto
Theoretical Economics Letters (TEL) , 2018, DOI: 10.4236/tel.2018.811134
Abstract: Considering the interplay between intra-firms (own retailing firms) and inter-firms (rival retailing firms) competition in vertically related markets, we compare linear tariffs and two-part tariffs pricing. In contrast to previous results, we show that when both products are sufficiently close substitutes, there is a threshold level of the number of retailing firms, beyond which each manufacturing firms profits are larger under linear tariffs pricing than under two-part tariffs pricing. It shows the contradictions to the conventional wisdom that two-part tariffs pricing is always better than linear tariffs pricing from the viewpoint of manufacturing firms. We also show that the wholesale prices increase as the number of retailing firms increases under two-part tariffs pricing, regardless of the degree of product substitutability.
On the Ratio of Revenue to Welfare in Single-Parameter Mechanism Design  [PDF]
Robert Kleinberg,Yang Yuan
Computer Science , 2013,
Abstract: What fraction of the potential social surplus in an environment can be extracted by a revenue-maximizing monopolist? We investigate this problem in Bayesian single-parameter environments with independent private values. The precise answer to the question obviously depends on the particulars of the environment: the feasibility constraint and the distributions from which the bidders' private values are sampled. Rather than solving the problem in particular special cases, our work aims to provide universal lower bounds on the revenue-to-welfare ratio that hold under the most general hypotheses that allow for non-trivial such bounds. Our results can be summarized as follows. For general feasibility constraints, the revenue-to-welfare ratio is at least a constant times the inverse-square-root of the number of agents, and this is tight up to constant factors. For downward-closed feasibility constraints, the revenue-to-welfare ratio is bounded below by a constant. Both results require the bidders' distributions to satisfy hypotheses somewhat stronger than regularity; we show that the latter result cannot avoid this requirement.
Reducing Revenue to Welfare Maximization: Approximation Algorithms and other Generalizations  [PDF]
Yang Cai,Constantinos Daskalakis,S. Matthew Weinberg
Computer Science , 2013,
Abstract: It was recently shown in [http://arxiv.org/abs/1207.5518] that revenue optimization can be computationally efficiently reduced to welfare optimization in all multi-dimensional Bayesian auction problems with arbitrary (possibly combinatorial) feasibility constraints and independent additive bidders with arbitrary (possibly combinatorial) demand constraints. This reduction provides a poly-time solution to the optimal mechanism design problem in all auction settings where welfare optimization can be solved efficiently, but it is fragile to approximation and cannot provide solutions to settings where welfare maximization can only be tractably approximated. In this paper, we extend the reduction to accommodate approximation algorithms, providing an approximation preserving reduction from (truthful) revenue maximization to (not necessarily truthful) welfare maximization. The mechanisms output by our reduction choose allocations via black-box calls to welfare approximation on randomly selected inputs, thereby generalizing also our earlier structural results on optimal multi-dimensional mechanisms to approximately optimal mechanisms. Unlike [http://arxiv.org/abs/1207.5518], our results here are obtained through novel uses of the Ellipsoid algorithm and other optimization techniques over {\em non-convex regions}.
Optimal Multi-Dimensional Mechanism Design: Reducing Revenue to Welfare Maximization  [PDF]
Yang Cai,Constantinos Daskalakis,S. Matthew Weinberg
Computer Science , 2012,
Abstract: We provide a reduction from revenue maximization to welfare maximization in multi-dimensional Bayesian auctions with arbitrary (possibly combinatorial) feasibility constraints and independent bidders with arbitrary (possibly combinatorial) demand constraints, appropriately extending Myerson's result to this setting. We also show that every feasible Bayesian auction can be implemented as a distribution over virtual VCG allocation rules. A virtual VCG allocation rule has the following simple form: Every bidder's type t_i is transformed into a virtual type f_i(t_i), via a bidder-specific function. Then, the allocation maximizing virtual welfare is chosen. Using this characterization, we show how to find and run the revenue-optimal auction given only black box access to an implementation of the VCG allocation rule. We generalize this result to arbitrarily correlated bidders, introducing the notion of a second-order VCG allocation rule. We obtain our reduction from revenue to welfare optimization via two algorithmic results on reduced forms in settings with arbitrary feasibility and demand constraints. First, we provide a separation oracle for determining feasibility of a reduced form. Second, we provide a geometric algorithm to decompose any feasible reduced form into a distribution over virtual VCG allocation rules. In addition, we show how to execute both algorithms given only black box access to an implementation of the VCG allocation rule. Our results are computationally efficient for all multi-dimensional settings where the bidders are additive. In this case, our mechanisms run in time polynomial in the total number of bidder types, but not type profiles. For generic correlated distributions, this is the natural description complexity of the problem. The runtime can be further improved to poly(#items, #bidders) in item-symmetric settings by making use of recent techniques.
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