The Evaluation of Maximum Tariffs in an Emerging Economy: The Nigerian Case

Abstract

Using the Cournot and Stackelberg theories of oligopolistic competition, the paper re-evaluate the importance of tariff ranking issue under a mixed oligopoly model with foreign competitors and asymmetric costs. We demonstrated that under Cournot theory, when the size of domestic private and foreign private firms becomes more unequally distributed, maximum–welfare tariff will exceed maximum–revenue tariff. The study also revealed that under Stackelberg theory, when the domestic government protects its domestic sector, it will levy higher maximum–welfare tariffs versus maximum–revenue tariffs. These two positions notwithstanding, when the Nigerian government decides to open its doors more for foreign competitors, it will need to levy higher maximum-revenue tariffs versus maximum–welfare tariffs. The findings of this paper remain valid whether the domestic public firm acts as a leader or a follower in the market.