THE LIBERALIZATION OF TARIFF RATE QUOTAS UNDER OLIGOPOLISTIC COMPETITION
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The paper develops a two-stage capacity constrained model, in which the mode of
competition is endogenous and the constraint is flexible, to investigate the impact of Tariff
Rate Quotas (TRQs) and of different liberalization options in oligopolistic markets. The
model predicts that the equilibrium moves from a pure Bertrand outcome to a Cournot
outcome as the effectiveness of the capacity constraint increase, that is, as the gap between the
cost of the licences plus the in-quota tariff and the out-of-quota tariff increases. The results
show that the impacts of the various liberalization options - the expansion of quotas by means
of an increase in the number of operators or in the quota allocated to incumbents, the
reduction in the in-quota and out-of-quota tariffs and improvements in the TRQ
administration system - are rather diverse from those predicted by models assuming perfect
competition.