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Foreign Entry and Domestic Welfare: Can "Market Discipline" Be Excessive?

Aditya Bhattacharjea ()

No 83, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: This paper examines the effects of foreign entry, in the form of either imports or direct foreign investment, into an oligopolistic market. It shows that foreign entry can reduce welfare relative to autarky unless at least some domestic firms exit, or unless the foreign firms capture a very large share of the home market. However, it also shows that an optimal tariff can prevent this welfare decline. The paper concludes with some suggestive empirical evidence, and implications are drawn for trade and investment liberalization, as well as for domestic and international competition policy.

Keywords: Entry; foreign investment; tariff; oligopoly; strategic trade policy. (search for similar items in EconPapers)
JEL-codes: F13 O19 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2000-07
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