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Entry Policy and Entry Subsidies

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  • Reitzes, James D
  • Grawe, Oliver R

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.

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  • Reitzes, James D & Grawe, Oliver R, 1999. "Entry Policy and Entry Subsidies," Review of International Economics, Wiley Blackwell, vol. 7(4), pages 715-731, November.
    • Handle: RePEc:bla:reviec:v:7:y:1999:i:4:p:715-31
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    Cited by:

    1. Pflüger, Michael & Suedekum, Jens, 2013. "Subsidizing firm entry in open economies," Journal of Public Economics, Elsevier, vol. 97(C), pages 258-271.
    2. Aditya Bhattacharjea, 2000. "Foreign Entry and Domestic Welfare: Can "Market Discipline" Be Excessive?," Working papers 83, Centre for Development Economics, Delhi School of Economics.

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