We show that with both home and foreign firms present in a market, liberalization of entry could raise or lower welfare. When goods are homogenous, we show that the optimum number of firms depends on the extent to which foreign firms are present. We show that the optimum number of firms exceeds the free entry level if there is enough of a foreign presence as measured by the fraction of foreign firms present in the domestic market. We also show how factors such as the source of entry, home or foreign, the extent of product differentiation within and between home and foreign firms, and the extent of fixed costs affect the desirability of free entry.
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Article provided by Department of Economics, Delhi School of Economics in its journal Indian Economic Review.
Volume (Year): 31 (1996) Issue (Month): 1 (January) Pages: 41-56 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: F14 - International Economics - - Trade - - - Country and Industry Studies of Trade F15 - International Economics - - Trade - - - Economic Integration F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
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