Market Entry Regulation and International Competition
33 Pages Posted: 7 Aug 2003
Date Written: July 2003
As a part of their industry or competition policies governments decide whether to allow for free market entry of firms or to regulate market access. We analyze a model where governments (ab)use these policy decisions for strategic reasons in an international setting. Multiple equilibria of this game emerge; and if the cost difference between domestic and foreign firms is "significant", all equilibria induce the same allocation, where production exclusively takes place in the cost-efficient country. Moreover, these equilibria are Pareto efficient if this cost difference is "substantial". Only if cost differences are "insignificant", may production take place in both countries in equilibrium.
JEL Classification: D43, F12, L11, L51
Suggested Citation: Suggested Citation