Tariffs, Vertical Oligopoly and Market Structure: Empirical Investigation

We study the impact of tariffs on the margins of intermediate-input trade and examine their impact on optimal tariffs for intermediate inputs. Using China Customs disaggregate product-level data from 2000 to 2008, we find that (i) China's WTO accession and the resulting input import tariff reductions increase China's input imports through both the extensive and intensive margins; (ii) after China's WTO accession, China's input import tariffs are higher, the more concentrated and hence the less competitive China's input markets (at the product level). We confirm that these findings are robust in alternative specifications. The estimation results are consistent with the theoretical prediction of the endogenous market structure by Ara and Ghosh (2017).