Entry Policy and Entry Subsidies

James D Reitzes and Oliver R Grawe

Review of International Economics, 1999, vol. 7, issue 4, 715-31

Abstract: Optimal entry policy is considered in markets served by both domestic and foreign firms. Compared with the prior entry literature, introducing foreign producers as market participants reduces incentives for entry deterrence and enhances incentives for entry subsidization. Incentives are changed because entry produces "terms-of-trade" gains. The optimal entry subsidy is analyzed under complete and incomplete information regarding the entrant's costs. Incomplete cost information creates differences in the optimal subsidy for domestic and foreign entrants, with foreign entrants relatively less subsidized. Domestic entrants with low marginal costs are oversubsidized and those with high marginal costs are undersubsidized. Copyright 1999 by Blackwell Publishing Ltd.

Date: 1999
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