Market Share Import Restraints in Oligopoly

Abstract

This paper contributes to the theoretical analysis of proportional import restraints, that is, restraints that are defined in terms of market shares (e.g., 10% of the market) rather than in terms of volume of imports (e.g., 200,000 automobiles per year). We show that an increase in the market share of foreign firms from zero locally has a negative effect on domestic welfare. We also ask who may benefit from restraints being proportional, and we show that in the case of a domestic oligopoly, domestic firms may likely prefer a proportional restraint over an equivalent volume restraint.

JEL Classification: F1, L1