Market Entry Regulation and International Competition
University of Tuebingen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); University of Adelaide - School of Economics
Bielefeld University - Department of Business Administration and Economics; CESifo (Center for Economic Studies and Ifo Institute)
Review of International Economics, Vol. 16, Issue 4, pp. 611-626, September 2008
We analyze a non-cooperative two-country game where each government decides whether to allow free market entry of firms or to regulate market access. We show that a Pareto-efficient allocation may result in equilibrium. In particular, if the cost difference between home and foreign production is significant, production will be located in the cost-efficient country exclusively; and if this cost difference is even substantial, the induced allocation is also Pareto efficient. Only if the cost difference is insignificant, production may take place in both countries and the allocation is inefficient.
Number of Pages in PDF File: 16
Date posted: August 20, 2008