Tariff policy and transport costs under reciprocal dumping*

This paper proposes a framework, based on a reciprocal dumping model, that assesses the effects of tariff competition for mobile firms on the location patterns of the industry as well as welfare implications. While high transport costs encourage geographic dispersion in the industry, sufficiently low transport costs result in a core‐periphery location where nobody bears tariff burdens. We show that the world economy would be in a much better position under an international co‐ordination scheme, which differs from models proposed in previous studies.