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The Perverse Effects of A Variable Oil Import Fee

If the world oil market is at all monopolistic, then a variable import fee (VIF) has more perverse effects than a flat import fee on the country that imposes it. Like an import quota, a VIF makes the importing country's demand for oil less elastic and increases the price paid by buyers in that country. Moreover, a VIF does not necessarily yield any tariff revenue to the country that imposes it. Finally, under very plausible conditions, a VIF may facilitate price discrimination by a monopolistic foreign producer against the country that imposes it.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation

JEL Codes: D42: Market Structure, Pricing, and Design: Monopoly, L11: Production, Pricing, and Market Structure; Size Distribution of Firms, Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources, L13: Oligopoly and Other Imperfect Markets, Q35: Hydrocarbon Resources, D43: Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection, Q38: Nonrenewable Resources and Conservation: Government Policy

Keywords: Variable oil import fee, Perverse effects, Oil supply

DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No4-10

Published in Volume 10, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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