Tariffs and Supply-Function Competition in General Equilibrium

doi:10.1111/roie.70059

Tariffs and Supply-Function Competition in General Equilibrium

2026-09-01

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Kamei, Keita *

DOI：10.1111/roie.70059

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This paper studies how trade policy can affect not only the level of markups but also the mode and intensity of competition in general equilibrium. We embed a tractable form of supply-function competition-where firms commit ex ante to upward-sloping supply schedules-into Neary's general oligopolistic equilibrium (GOLE) framework. Firms endogenously choose the slope of their supply schedules at a convex real-resource cost, which we interpret as a flexibility investment. In a symmetric two-country benchmark with per-unit tariffs, equilibrium reduces to a single scalar condition in aggregate supply responsiveness; when multiple roots arise, a local stability criterion selects the relevant branch. Comparative statics show that, on the stable interior equilibrium, higher tariffs raise equilibrium supply responsiveness and thereby change competitive conduct, with general-equilibrium implications for wages and welfare. Welfare falls because higher responsiveness crowds labor into flexibility investment and away from production.

Keywords:

general oligopolistic equilibrium

market structure

supply function equilibrium

tariffs

welfare

Tariffs and Supply-Function Competition in General Equilibrium

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