Government-induced Production Commitment in the Open Economy

Hiroaki Ino and Akira Miyaoka ()
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Akira Miyaoka: Graduate School of Economics, Kansai University

No 142, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: We investigate the welfare effects of the strategic regulation that induces a collusive leadership of the organized domestic incumbents under free entry of foreign firms. We formulate such a strategic regulation in the quantity-setting competition where the domestic firms can collusively make their production decision before the entry of foreign firms, and demonstrate how strongly the regulation works in terms of domestic social welfare by comparing to the welfare-maximizing import tariff policy. We show that when the products of firms are homogeneous, that strategic regulation always yields higher welfare than the import tariff does even if the regulator perfectly engages in the domestic-industry protection and ignores consumer surplus. We also consider the differentiated products and demonstrate that the similar result holds when the degree of differentiation is relatively small, but the converse holds when the degree of differentiation is relatively large even if the regulator is perfectly benevolent.

Keywords: Protectionism; Non-tariff barriers; Import tariff; Endogenous entry; Developmental state; Transition economy; Public enterprise; Trade association; Self-regulation (search for similar items in EconPapers)
JEL-codes: F12 F13 L11 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2016-05, Revised 2016-05
New Economics Papers: this item is included in nep-com and nep-cse
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:142

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