Abstract
      The main purpose of this paper is to investigate the effect of a foreign output on the optimal tariff and on the entry decision of a domestic firm when cost information is not symmetrically distributed between foreign and domestic firms. We assume that the foreign firm exports the domestic market over two periods. In the first period, the firm chooses a quantity under a constant tariff. After observing the level of imports, the government forms beliefs about the type of firm exporting its market and selects a per unit tariff. Given the chosen tariff, in the second period the foreign firm makes its output decision. At the same time, the domestic firm enters the domestic market if it estimates that the foreign firm is a high-cost type. When the domestic firm enters, it competes the foreign firm a la Cournot. When it does not enter, the foreign firm remains a monopolist. The foreign firm faces a trade-off between the profit of the low tariff and the loss of the entry of domestic firm when it constrains the first period output. Whether it constrains its first period output depends on the difference between the profit and the loss.