Import now! An analysis of market-share voluntary import expansions (VIEs)

Proponents claim that voluntary import expansions (VIEs) increase foreign access to a domestic market while increasing competition and reducing prices. Using a Bertrand model, I show that a VIE produces exactly the opposite results. A VIE that increases the market share of imports above the prevailing level results in higher prices in the domestic market. This result holds even when the domestic market is assumed to be protected by a tariff-type barrier prior to the imposition of a VIE. A VIE and an equivalent import subsidy are shown to have opposite effects on prices.