Foreign Entry and Domestic Welfare: Can "Market Discipline" Be Excessive?
This paper examines the effects of foreign entry, in the form of either imports or direct foreign investment, into an oligopolistic market. It shows that foreign entry can reduce welfare relative to autarky unless at least some domestic firms exit, or unless the foreign firms capture a very large share of the home market. However, it also shows that an optimal tariff can prevent this welfare decline. The paper concludes with some suggestive empirical evidence, and implications are drawn for trade and investment liberalization, as well as for domestic and international competition policy.
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- Harrison, Ann & Hanson, Gordon, 1999.
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- Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-489, March.
- Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
- Denicolo, Vincenzo & Garella, Paolo G, 1999. "Market-Share Import Restraints in Oligopoly," Review of International Economics, Wiley Blackwell, vol. 7(4), pages 732-743, November.
- 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.
- Martin Richardson, 1998. "Foreign entry and domestic welfare," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 134(2), pages 250-262, June.
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