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Switching Costs And The Foreign Firm'S Entry

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  • TORU KIKUCHI

Abstract

In this paper we consider a two‐period model of market entry with homogeneous products and switching costs. It is shown that the pro‐competitive effect of a foreign firm's entry (i.e. unilateral trade liberalization) emerges before the entry. Also, conditions that are conducive to a competitive environment in the second period are shown to yield a less competitive outcome in the first period. That is, when the marginal cost of the foreign entrant is relatively low, the first‐period output of a domestic monopolist is relatively low as well.

Suggested Citation

  • Toru Kikuchi, 2009. "Switching Costs And The Foreign Firm'S Entry," Manchester School, University of Manchester, vol. 77(3), pages 366-372, June.
    • Handle: RePEc:bla:manchs:v:77:y:2009:i:3:p:366-372
    DOI: 10.1111/j.1467-9957.2009.02101.x
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    References listed on IDEAS

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    1. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(4), pages 515-539.
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    8. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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