Abstract
Typically, analysis of trade liberalization ignores the impact that intermediate stages in the production and distribution system may have on the pass-through of changes in tariffs to final goods' prices. Using a model of a multi-stage system, this paper shows that both the number of vertical stages and the degree of imperfect competition at any specific stage can affect the degree of tariff pass-through. Simulation of the model with respect to recent changes in the European Union banana regime suggests that ignoring vertical market structure is likely to over-estimate the benefits to consumers of trade liberalization.
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