Foreign penetration and domestic competition

Sajal Lahiri and Yingyi Tsai ()
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Yingyi Tsai: National University of Kaohsiung

Journal of Economics, 2019, vol. 128, issue 1, No 2, 27-45

Abstract: Abstract We consider an oligopolistic model comprised of domestic and foreign firms. The two sets of firms produce differentiated goods and serve the domestic market. We consider different market structures depending on the existence of free entry and exit of either set of firms. In this context, we examine the structure of optimal lump-sum taxes, and the effect of an increase in the number of foreign firms (foreign penetration) on, inter alia: (1) the free-entry number of domestic firms, (2) the optimal number of domestic firms, and (3) domestic welfare. The main finding is that foreign penetration unambiguously reduces excessive competition among domestic firms.

Keywords: Differentiated goods; Domestic firms; Foreign direct investment; Lump-sum subsidies; Oligopoly (search for similar items in EconPapers)
JEL-codes: F2 H2 L1 L5 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:128:y:2019:i:1:d:10.1007_s00712-018-0647-8

DOI: 10.1007/s00712-018-0647-8

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