Schiff, MauriceChang, Won2013-09-092013-09-092001-01https://hdl.handle.net/10986/15740How firms react to a given shock may depend on the degree to which rivals are present and on whether potentially viable entrants to that market exist. The authors try to measure these effects internationally by examining the price behavior of the United States in Brazil's market when MERCOSUR trade liberalization and most-favored-nation (MFN) trade liberalization take place. Using detailed panel data on trade and tariff rates, they find that both the market presence of a preferred supplier and expected entry lessen the U.S. price reaction to MFN trade liberalization and increase the U.S. price reaction to preferential trade liberalization. Argentina's presence in Brazil's market results in a smaller U.S. price response to Brazil's MFN tariff change and in a larger response to a preferential tariff change. More surprisingly, the quantitative effects of market presence and expected entry (contestability) are not significantly different from each other. Contestability plays no significant role when Argentina's is absent from Brazil's market, contestability lessens the U.S. response to changes in the MFN tariff and increases it in response to changes in the preferential tariff. It follows from these results that presence in, as well as threat of entry into, partners' markets implies lower optimal external tariffs and suggests that regional agreements can have pro-competitive effects in the presence of contestability. The authors also examine the hypothesis of "symmetry" between the effect of tariffs and that of exchange rates.en-USCC BY 3.0 IGOABSOLUTE VALUEBERTRAND COMPETITIONBLOC FORMATIONCOMPETITIVENESSCONDITION OF ENTRYCONSUMER PRICESCONTESTABILITYCONTESTABLE MARKETSCURRENCYCUSTOMSCUSTOMS UNIONDIFFERENTIATED PRODUCTSECONOMIC POLICYECONOMIES OF SCALEEMPIRICAL ANALYSISENDOGENOUS TARIFF FORMATIONEXCHANGE RATEEXCHANGE RATESEXPORT MARKETSEXPORT PRICEEXPORT PRICESEXPORTERSEXPORTSEXTERNAL TARIFFEXTERNAL TARIFFSEXTERNAL TRADEEXTERNAL TRADE BARRIERSFOREIGN FIRMSFREE TRADEHOME MARKETIMPERFECT COMPETITIONIMPORT PRICESIMPORTSINPUT PRICESINTERNAL FREE TRADEINTERNAL LIBERALIZATIONINTERNATIONAL ECONOMICSINTERNATIONAL MARKETSLOCAL CURRENCYMARGINAL COSTMARGINAL COSTSMARKET ACCESSMARKET BEHAVIORMARKET PRESENCEMARKET SHAREMARKET SHARESMARKET STRUCTUREMEMBER COUNTRYMFN TARIFFSMOST-FAVORED- NATIONMOST-FAVORED-NATIONNON- MEMBER COUNTRIESNON-MEMBER COUNTRIESOLIGOPOLYPOLICY REFORMSPREFERENTIAL LIBERALIZATIONPREFERENTIAL TARIFFPREFERENTIAL TARIFFSPREFERENTIAL TRADEPREFERENTIAL TRADE LIBERALIZATIONPREFERENTIAL TRADE POLICYPRICE EFFECTPRICE EFFECTSPRICE INDEXPRO-COMPETITIVE EFFECTSPRODUCERSPRODUCT CATEGORIESREDUCING PRICESREGIONAL AGREEMENTREGIONAL BLOCSREGIONAL INTEGRATIONREGIONAL INTEGRATION AGREEMENTSREGIONALISMRETAILSALESSUPPLIERSTARIFF DATATARIFF RATETARIFF RATESTARIFF REDUCTIONTARIFF STRUCTURETERMS OF TRADETRADE BLOCTRADE CREATIONTRADE DATATRADE EFFECTSTRADE GAINSTRADE LIBERALIZATIONTRADE PATTERNTRADE POLICIESTRADE POLICYTRADE VOLUMETRADING PARTNERTRADING PARTNERSUNILATERAL REFORMSWORLD MARKET TERMS OF TRADECONTESTABILITYTRADE LIBERALIZATIONMOST FAVOURED NATION CLAUSETARIFFSEXCHANGE RATESREGIONAL TRADE AGREEMENTSWorld Bank10.1596/1813-9450-2532