Sequential Tariffs in Cournot and Bertrand Competition

We examine the welfare implication of the sequential tariff game between discriminatory and uniform tariff rates in which the importing country imposes tariffs on asymmetric foreign exporters. Under Cournot competition, the importing country has an incentive to manipulate the tariff structure through sequential tariffs. Imposing the sequential uniform tariff improves consumer surplus, as well as social and global welfare, when the cost difference is small. In contrast, under Bertrand competition, the importing country always prefers the simultaneous tariff over the sequential tariff. As a result, the importing country prefers the simultaneous discriminatory tariff to the uniform tariff under Bertrand competition. Moreover, consumer surplus, social and global welfare with the simultaneous discriminatory tariff under Bertrand competition are greater than with the sequential uniform or the discriminatory tariff under Cournot competition.