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Local content protection reconsidered: the case of domestic monopsonist

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  • Tomohiro Kuroda

    (Graduate School of Economics Hitotsubashi University)

Abstract

In this paper we examine how local content protection (LCP) affects the use of the domestic intermediates, the use of total intermediates and the domestic welfare when domestic intermediate-goods market is under monopsony. In the domestic intermediate-goods market under monopsony, the marginal expenditure cost (MEC) of using domestic intermediates has a discontinuous segment because the average expenditure cost (AEC) is a kinked curve. It is shown that there exists a case where because of the discontinuity of the marginal expenditure cost, LCP has no effect on the use of domestic intermediates and has a negative impact on the domestic final-goods producer. This paper provides a summary of the general effects of LCP on the domestic intermediate-goods market under monopsony in terms of resource allocations and the domestic welfare. Moreover, the effects of LCP under monopsony are compared with the case under perfect competition and under free trade.

Suggested Citation

  • Tomohiro Kuroda, 2004. "Local content protection reconsidered: the case of domestic monopsonist," Economics Bulletin, AccessEcon, vol. 6(24), pages 1-9.
    • Handle: RePEc:ebl:ecbull:eb-04f10010
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    References listed on IDEAS

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    1. Salvatore,Dominick (ed.), 1993. "Protectionism and World Welfare," Cambridge Books, Cambridge University Press, number 9780521424899.
    2. Salvatore,Dominick (ed.), 1993. "Protectionism and World Welfare," Cambridge Books, Cambridge University Press, number 9780521414555.
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    JEL classification:

    • F1 - International Economics - - Trade
    • F1 - International Economics - - Trade

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