Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry

Gene Grossman () and Henrik Horn ()

The Quarterly Journal of Economics, 1988, vol. 103, issue 4, pages 767-87

Abstract: In industries with imperfect consumer information, the lack of a reputation puts latecomers at a competitive disadvantage vis-a-vis established firms. The authors consider whether the existence of such informational barriers to entry provides a valid reason for temporarily protecting infant producers of experience goods and services. Their model incorporates both moral hazard in an individual firm's choice of quality and adverse selection among potential entrants into the industry. They find that infant-industry protection often exacerbates the welfare loss associated with these market imperfections. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 1988
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