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

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  • Aditya Bhattacharjea

    (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.

Suggested Citation

  • Aditya Bhattacharjea, 2000. "Foreign Entry and Domestic Welfare: Can "Market Discipline" Be Excessive?," Working papers 83, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:83
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    References listed on IDEAS

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    Cited by:

    1. Aditya Bhattacharjea, 2001. "Import Quotas, Export Promotion and Intra-Industry Trade," Working papers 96, Centre for Development Economics, Delhi School of Economics.

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    More about this item

    Keywords

    Entry; foreign investment; tariff; oligopoly; strategic trade policy.;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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