Measuring the effects of government trade policy changes in oligopolistic differentiated product markets (Turkey)

This dissertation is concerned with measuring of the effects of trade policy changes in oligopolistic differentiated product markets. At the heart of the dissertation is a structural partial equilibrium model of the Turkish automobile industry. This model belongs to the class of studies in the empirical industrial organization literature that combine discrete choice demand with imperfectly competitive supply to analyze the dynamics of oligopolistic markets. The dissertation starts by utilizing this model to analyze an actual government policy change in the first chapter. Chapters two and three analyze the sensitivity of the model's results to two important assumptions in the context of a different government policy change.; The first chapter uses the model to study the effects of the 1996 domestic tax reform in the Turkish automobile market. I argue that the real aim of the tax reform was to limit automobile imports in the face of pressure from the IMF to eliminate trade deficits and lobbying from domestic manufacturers. I show that the Turkish government, constrained in its use of trade policy tools due to its customs union agreement with the European Union, exploited the differentiation between domestic and foreign cars to structure a domestic tax reform package that acted as a trade protection device. I show that the impact of the actual tax changes are almost identical to a comparable hypothetical tariff reform. I also compare the efficiency of the actual tax reform to several alternative policies that reduce the imports by the same amount. The results indicate that tariffs are more efficient than ad-valorem domestic taxes, which are in turn more efficient that unit taxes.; One potential limitation of the methodology in the first chapter is that it analyzes the automobile industry in partial equilibrium context, i.e., in isolation from the rest of the economy. Recognizing this, the second chapter quantifies the effects of general equilibrium considerations on welfare results. The analysis is carried out in the context of a different trade policy change, tariff reductions. I embed the partial equilibrium model of the automobile industry into a general equilibrium framework and compare the partial and general equilibrium welfare estimates under two scenarios involving tariff reductions in the automobile, steel and auto-parts industries. The results indicate that the errors associated with ignoring general equilibrium effects are small if the tariff reductions are limited to the automobile sector. However, the errors can be large if tariffs in auto-parts and steel sectors are reduced simultaneously.; The third chapter analyzes another potential limitation of the model. The analyses in the first two chapters assume that the set of products on the market do not change as a result of the policy reforms. The third chapter relaxes this assumption and estimates the welfare effects of introducing new automobiles to the Turkish market. The analysis concludes that accounting for changes in choice sets might be an important consideration in measuring the welfare effects of policy reforms.