On the Use of Competition Policy to Enhance the Effectiveness of Industrial Policy

Martin Richardson and Stephen Knowles ()

Review of Development Economics, 1999, vol. 3, issue 1, 58-65

Abstract: Motivated by the observation that many countries with an active industrial policy also have a lax competition policy, this paper argues that restricting firm numbers may be a means of rendering industrial policy more effective. A simple model is set up in which a subsidy is desirable to correct a general externality but may induce over‐entry. Restricting the number of firms then renders the subsidy policy more effective in correcting the externality problem.

Date: 1999
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