Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry
AbstractIn industries with imperfect consumer information, the lack of a reputation puts latecomers at a competitive disadvantage vis-a-vis established firms. We consider whether the existence of such informational barriers to entry provides a valid reason for temporarily protecting infant producers of experience goods and services. Our model incorporates both moral hazard in an individual firm's choice of quality and adverse selection among potential entrants into the industry. We find that infant-industry protection often exacerbates the welfare loss associated with these market imperfections.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2159.
Date of creation: Feb 1987
Date of revision:
Publication status: published as The Quarterly Journal of Economics, Vol. CIII, No. 415, Issue 4,pp. 767-787, (November 1988).
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Other versions of this item:
- Grossman, Gene M & Horn, Henrik, 1988. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(4), pages 767-87, November.
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- Kyle Bagwell, 1986. "Informational Product Differentiation as a Barrier to Entry," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 711, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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- Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(4), pages 659-79, November.
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