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Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry

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Gene M. Grossman
Henrik Horn

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Abstract

In 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2159.

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Date of creation: May 1989
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Handle: RePEc:nbr:nberwo:2159

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Clemhout, S & Wan, H Y, Jr, 1970. "Learning-by-Doing and Infant Industry Protection," Review of Economic Studies, Blackwell Publishing, vol. 37(1), pages 33-56, January. [Downloadable!] (restricted)
  2. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November. [Downloadable!] (restricted)
  3. Schmalensee, Richard, 1982. "Product Differentiation Advantages of Pioneering Brands," American Economic Review, American Economic Association, vol. 72(3), pages 349-65, June. [Downloadable!] (restricted)
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  4. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr. [Downloadable!] (restricted)
  5. Wolfgang Mayer, 1984. "The Infant-Export Industry Argument," Canadian Journal of Economics, Canadian Economics Association, vol. 17(2), pages 249-69, May. [Downloadable!] (restricted)
  6. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 311-327, Autumn. [Downloadable!] (restricted)
  7. Bagwell, Kyle, 1990. "Informational product differentiation as a barrier to entry," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 207-223, June. [Downloadable!] (restricted)
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  8. Joseph Farrell, 1986. "Moral Hazard as an Entry Barrier," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 440-449, Autumn. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Beghin, John C. & Bureau, Jean-Christophe, 2001. "Quantification of Sanitary, Phytosanitary, and Technical Barriers to Trade for Trade Policy Analysis," Staff General Research Papers 2024, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  2. Ram Mudambi, 1993. "Government Policy toward MNEs in the Presence of Foreign Exchange Scarcity," Eastern Economic Journal, Eastern Economic Association, vol. 19(1), pages 99-108, Winter. [Downloadable!]
  3. Jörn Hendrich Block & Thorsten Staak & Philipp Tilleßen, 2007. "Ist das staatliche Eingreifen ins Gründungsgeschehen theoretisch legitimiert?," FEMM Working Papers 07007, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management. [Downloadable!]
  4. Michael Webb, 1993. "Learning-By-Trading And Commercial Policy," International Economic Journal, Korean International Economic Association, vol. 7(4), pages 1-15, December. [Downloadable!] (restricted)
  5. Raff, Horst & von der Ruhr, Marc, 2001. "Foreign Direct Investment in Producer Services: Theory and Empirical Evidence," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Jayaraman, Rajshri & Oak, Mandar, 2003. "The Signaling Role of Municipal Currencies in Local Development," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  7. Unterschultz, J.R. & Lerohl, M.L. & Peng, Y. & Gurung, R.K., 1998. "A Nutraceutical Industry: Policy Implications for Future Directions," Project Report Series 24051, University of Alberta, Department of Rural Economy. [Downloadable!]
  8. Robert C. Feenstra & Tracy R. Lewis & John McMillan, 1990. "Designing Policies to Open Trade," NBER Working Papers 3258, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Siddhartha Bandyopadhyay, 2004. "Endogenous Market Thickness and Honesty : A Quality Trap Model," Industrial Organization 0408006, EconWPA. [Downloadable!]
  10. Kyle Bagwell, 1990. "Optimal Export Policy for a New-Product Monopoly," Discussion Papers 898, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  11. Bin Xu, 2003. "Trade and financial liberalization with asymmetric information in bank financing," Journal of Policy Reform, Taylor and Francis Journals, vol. 6(2), pages 57-69, June. [Downloadable!] (restricted)
  12. Alessandro Nicita & Marcelo Olarreaga & Isidro Soloaga, 2003. "The Region as an Export Platform to the World? The Case of Mercosur," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 442-451. [Downloadable!]
  13. Siddhartha Bandyopadhyay, 2005. "Endogenous Market Thickness, Prices and Honesty: Quality Demand Traps," Discussion Papers 05-02, Department of Economics, University of Birmingham. [Downloadable!]
  14. Karacaovali, Baybars, 2006. "Productivity matters for trade policy : theory and evidence," Policy Research Working Paper Series 3925, The World Bank. [Downloadable!]
    Other versions:
  15. Jansen, Marion & Lince de Faria, André, 2002. "Product Labelling, Quality and International Trade," CEPR Discussion Papers 3552, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  16. Kyle Bagwell & R. Staiger, 1987. "The Role of Export Subsidies When Product Quality is Unknown," Discussion Papers 758, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  17. Eugenio J. Miravete, 1993. "Learning by Doing and Protection of an Infant-Industry," Discussion Papers 1097, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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