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Government-induced Production Commitment in the Open Economy

Author

Listed:
  • Hiroaki Ino

    (School of Economics, Kwansei Gakuin University)

  • Akira Miyaoka

    (Graduate School of Economics, Kansai University)

Abstract

We investigate the welfare effects of the strategic regulation that induces a collusive leadership of the organized domestic incumbents under free entry of foreign firms. We formulate such a strategic regulation in the quantity-setting competition where the domestic firms can collusively make their production decision before the entry of foreign firms, and demonstrate how strongly the regulation works in terms of domestic social welfare by comparing to the welfare-maximizing import tariff policy. We show that when the products of firms are homogeneous, that strategic regulation always yields higher welfare than the import tariff does even if the regulator perfectly engages in the domestic-industry protection and ignores consumer surplus. We also consider the differentiated products and demonstrate that the similar result holds when the degree of differentiation is relatively small, but the converse holds when the degree of differentiation is relatively large even if the regulator is perfectly benevolent.

Suggested Citation

  • Hiroaki Ino & Akira Miyaoka, 2016. "Government-induced Production Commitment in the Open Economy," Discussion Paper Series 142, School of Economics, Kwansei Gakuin University, revised May 2016.
    • Handle: RePEc:kgu:wpaper:142
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    References listed on IDEAS

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    Cited by:

    1. Keisaku Higashida & Hiroaki Ino, 2019. "Strategic Production Subsidy/Tax under Mutual Endogenous Entry of Foreign Firms," Discussion Paper Series 201, School of Economics, Kwansei Gakuin University.

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    More about this item

    Keywords

    Protectionism; Non-tariff barriers; Import tariff; Endogenous entry; Developmental state; Transition economy; Public enterprise; Trade association; Self-regulation;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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