A Game Theoretical Analysis of Tariffs

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bachelor_Huhdanpää_Mia_2025.pdf (578.09 KB)

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School of Business | Bachelor's thesis
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Date

2025

Department

Taloustieteen laitos

Major/Subject

Mcode

Degree programme

Bachelor’s programme in Economics

Language

en

Pages

20 + 8

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Abstract

In this literature review, I examine the application of international tariff interactions in the framework of game theory. I aim to analyse the ability of such models to explain the key aspects of these strategic international relations. I take into account structure such as timing, number and type of players, informational assumptions, payoffs, and equilibrium outcomes. Through a thorough comparison of literature discussed in this paper, it is found that tariff interactions are best classified as two-player sequential and repeated games, in which payoffs capture tariff-relevant welfare motivations and political pressures. Moreover, it is found that tariff relations can be classified as either cooperative or non-cooperative, indicating the presence of a trade agreement and potential to negotiate, or the lack thereof. Equilibrium outcomes vary in either setting.

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Thesis advisor

Savolainen, Ville

Keywords

import price elasticity, terms-of-trade, cooperative tariffs, non-cooperative tariffs, prisoner's dilemma, trade agreement

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https://urn.fi/URN:NBN:fi:aalto-202505254039

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[kand] Kauppakorkeakoulu / BIZ (Open Access)