Abstract
This paper constructs a reciprocal market model of intra‐industry trade in network goods to consider the implications of network externalities for an optimal tariff policy and the welfare effects of bilateral tariff reductions. We show that the degree of network externalities nontrivially affects the sign of the Nash equilibrium tariff. Then, we prove that network externalities amplify the gains from tariff reductions. These results help better understand the implications of trade‐related issues in network industries.
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