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Free entry in the Indian automobile industry: a calibration model

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  • Paul Jensen
  • Kala Krishna

Abstract

We examine the implications of free entry in the Indian automobile industry in a model that is calibrated to the Indian market using price, cost and production data from 1993 and 1994. In particular, we consider the effect that free entry has on prices, production levels and welfare. We have two main findings. First, that despite the experiences of other countries, free entry is a desirable policy in this market. Second, that the excise tax of 40 per cent levied on automobiles does not seem to have a major adverse impact on welfare.

Suggested Citation

  • Paul Jensen & Kala Krishna, 1999. "Free entry in the Indian automobile industry: a calibration model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(4), pages 437-455.
    • Handle: RePEc:taf:jitecd:v:8:y:1999:i:4:p:437-455
    DOI: 10.1080/09638199900000026
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    References listed on IDEAS

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    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 217-235.
    2. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    3. Pratten, C F, 1971. "Economies of Scale for Machine Tool Production," Journal of Industrial Economics, Wiley Blackwell, vol. 19(2), pages 148-165, April.
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