exert its complete monopoly power even if there is prohibitive tariff on both the high and low quality segment of the market …. On the other hand, given non prohibitive tariff on the high quality segment, the potential gain for the monopolist … exhausts at a level much below the prohibitive low-quality tariff level. Also a sufficiently low tariff on the high quality …

imports from abroad, we examine private and social incentives for quality innovation. For differential tariff regime, we show … that both the private and social gains increase with the tariff protection for the low-quality segment of the domestic … market for any given tariff on high-quality imports. But for some very high costs of innovation, the local firm may not …