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Foreign penetration and domestic competition

Author

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  • Sajal Lahiri

    (Southern Illinois University Carbondale)

  • Yingyi Tsai

    (National University of Kaohsiung)

Abstract

We consider an oligopolistic model comprised of domestic and foreign firms. The two sets of firms produce differentiated goods and serve the domestic market. We consider different market structures depending on the existence of free entry and exit of either set of firms. In this context, we examine the structure of optimal lump-sum taxes, and the effect of an increase in the number of foreign firms (foreign penetration) on, inter alia: (1) the free-entry number of domestic firms, (2) the optimal number of domestic firms, and (3) domestic welfare. The main finding is that foreign penetration unambiguously reduces excessive competition among domestic firms.

Suggested Citation

  • Sajal Lahiri & Yingyi Tsai, 2019. "Foreign penetration and domestic competition," Journal of Economics, Springer, vol. 128(1), pages 27-45, September.
    • Handle: RePEc:kap:jeczfn:v:128:y:2019:i:1:d:10.1007_s00712-018-0647-8
    DOI: 10.1007/s00712-018-0647-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Differentiated goods; Domestic firms; Foreign direct investment; Lump-sum subsidies; Oligopoly;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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