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Corruption and decisions on opening up markets

Author

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  • Dong, Quan
  • Bárcena-Ruiz, Juan Carlos

Abstract

We consider a mixed duopoly with a private firm, domestic or foreign-owned, competing with a public firm. We analyze the extent to which opening policy is affected by lobbying efforts and rent-seeking behaviors. We obtain the counterintuitive result that corruption may improve social welfare when the government neglects corruption and does not prevent it, as the scope for the entry of a foreign private firm is greater. Moreover, the government may prevent corrupt activities by policy-makers by requiring the entrant firm to buy a license to operate in the market. In this case, the scope for external opening up is greater than in the other cases and social welfare is further improved when the entrant firm is foreign-owned.

Suggested Citation

  • Dong, Quan & Bárcena-Ruiz, Juan Carlos, 2014. "Corruption and decisions on opening up markets," Economic Modelling, Elsevier, vol. 36(C), pages 23-29.
    • Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:23-29
    DOI: 10.1016/j.econmod.2013.09.015
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    More about this item

    Keywords

    Mixed duopoly; Opening; Entry; Corruption;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy

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