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Product Market Competition in Transition Economies: Increasing Varieties and Consumer Loyalty

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  • Mitsutoshi Adachi

Abstract

The collapse of communism brought about previously inexistent product market competition in transition economies. This paper analyzes such rivalry with a focus on some specific features of these markets. While inviting foreign multinationals is always beneficial for local consumers, cost reduction at the local producers (i.e., former SOE's) is necessary to realize the full-fledged benefits of such entry. Inefficient production by the former SOE's is particularly detrimental when the cost difference vis-??-vis foreign entrants is above a threshold level, because the more efficient entrants exploit their cost advantages to raise prices instead of pricing aggressively for market share. This in turn reduces the appeal of opening domestic markets to international trade to promote competition.

Suggested Citation

  • Mitsutoshi Adachi, 1999. "Product Market Competition in Transition Economies: Increasing Varieties and Consumer Loyalty," William Davidson Institute Working Papers Series 223, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1999-223
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    Keywords

    product market competition; foreign entry; former SOE's; inefficiency;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
    • P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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