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A Simple Model of Foreign Brand Penetration under Monopolistic Competition

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  • Toru Kikuchi

Abstract

The main purpose of this study is to illustrate, with a simple monopolistic competition trade model, how trade liberalization (i.e., a decline in trade costs) can affect domestic entrepreneurs’ decisions between domestic brands and foreign brands, and thus the degree of foreign brand penetration. It is shown that, as trade costs decrease, more entrepreneurs choose to provide foreign brands. However, the impact of trade liberalization (in terms of changes in profit levels) becomes smaller as more entrepreneurs switch to foreign brands.

Suggested Citation

  • Toru Kikuchi, 2009. "A Simple Model of Foreign Brand Penetration under Monopolistic Competition," EERI Research Paper Series EERI_RP_2009_14, Economics and Econometrics Research Institute (EERI), Brussels.
    • Handle: RePEc:eei:rpaper:eeri_rp_2009_14
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    References listed on IDEAS

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    More about this item

    Keywords

    Foreign brand penetration; trade liberalization; monopolistic competition.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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