Switching Costs and the foreign Firm's Entry
This paper considers a two-period model of market entry with homogeneous products and switching costs. It is shown that the pro-competitive effect of a foreign firm's entry (i.e., unilateral trade liberalization) emerges before the entry. Also, conditions that are conducive to a competitive environment in the second-period are shown to yield a less competitive outcome in the first-period. That is, when the marginal cost of the foreign entrant is relatively low, the first-period output of a domestic monopolist is relatively low as well.
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