Import tariffs and transport prices

Abstract

This paper discusses how import tariffs interact with transport prices in episodes of trade liberalization. We develop a model of a transport industry that operates under imperfect competition and economies of scale. Double marginalization due to market power reduces the effects of trade liberalization, while a larger trade volume may support them due to economies of scale. We use a large data set of maritime transport data and combine it with tariff data to find that economies of scale beat market power: a decline in the tariff implies a decline in freight rates.