The welfare effects of entry: the role of the input market

In a successive Cournot oligopoly, we show the welfare effects of entry in the final goods market with no scale economies but with cost difference between the firms. If the input market is very concentrated, entry in the final goods market increases welfare. If the input market is not very concentrated, entry in the final goods market may reduce welfare if the entrant is moderately cost inefficient. Hence, entry in the final goods market is more desirable if (1) the input market is very concentrated or (2) the cost difference between the incumbents and the entrant is either very small or very large. It follows from our analysis that entry increases the profits of the incumbent final goods producers if their marginal costs are sufficiently lower than the entrant’s marginal cost.     

Intellectual property rights, technology transfer and exports in developing countries

We develop a model to analyze one mechanism under which stronger intellectual property rights (IPR) protection may improve the ability of firms in developing countries to break into export markets. A Northern firm with a superior process technology chooses either exports or technology transfer through licensing as its mode of supplying the Southern market, based on local IPR policy. Given this decision, the North and South firms engage in Cournot competition in both markets. We find that stronger IPR would enhance technology transfer through licensing and reduce the South firm's marginal production cost, thereby increasing its exports. Welfare in the South would rise (fall) if that country has high (low) absorptive capacity. Excessively strong IPR diminish competition and welfare, however. Adding foreign direct investment as an additional channel of technology transfer sustains these basic messages.     

Intellectual property rights,technology transfer and exports in developing countries

We develop a model to analyze one mechanism under which stronger intellectual property rights (IPR) protection may improve the ability of firms in developing countries to break into export markets. A Northern firm with a superior process technology chooses either exports or technology transfer through licensing as its mode of supplying the Southern market, based on local IPR policy. Given this decision, the North and South firms engage in Cournot competition in both markets. We find that stronger IPR would enhance technology transfer through licensing and reduce the South firm's marginal production cost, thereby increasing its exports. Welfare in the South would rise (fall) if that country has high (low) absorptive capacity. Excessively strong IPR diminish competition and welfare, however. Adding foreign direct investment as an additional channel of technology transfer sustains these basic messages.     

Welfare‐reducing Domestic Cost Reduction*

We show that cost reduction by a domestic firm may reduce domestic welfare if it changes a foreign firm’s production strategy from foreign direct investment to export. Domestic cost reduction can be welfare reducing when the domestic market is sufficiently small and domestic firm’s marginal cost of production is higher than the foreign firm’s marginal cost of production under foreign direct investment, which is a usual feature of trade between developed and developing countries. So, developing countries with small domestic markets need competent competition policies when encouraging domestic innovation and also trying to attract foreign direct investment.     

International Outsourcing,Tax, and Patent Protection

We show the implications of strengthening patent protection in a developing country in the presence of a vertical technology transfer, which, despite its empirical relevance, did not get due attention in the literature. We show that if there is imperfect knowledge spillover under a weak patent protection, a strong patent protection in the developing country increases the profit of the developed‐country firm if there is a uniform tax rate in the developing country. However, if there is either perfect knowledge spillover under weak patent protection or discriminatory tax policy in the developing country, the profits of the developed‐country firms are the same under weak and strong patent protections in the developing countries.     

Regulation, market structure and service trade liberalization

In this paper, we develop a theoretical method to quantify the importance of regulation and market structure on the success of service trade liberalization. For this purpose, we incorporate a single imperfectly competitive service sector that can take on various market structures into a standard computational general equilibrium model. We apply our framework to analyze the impact of partial telecom liberalization in Tunisia. We show that if the regulatory environment guarantees competition, Tunisia's welfare can improve up to 0.65%. If a cartel is formed between the domestic incumbent and foreign entrant, however, Tunisia's welfare can drop up to 0.25%. Our results thus call for Tunisia among other developing countries to step up its pro-competitive regulatory reforms while liberalizing its telecom sector.     

Pricing Access to a Monopoly Input

What price should downstream entrants pay a vertically integrated incumbent monopoly for use of its assets? Courts, legislators, and regulators have at times mandated that incumbent monopolies lease assets required for the production of a retail service to entrants in efforts to increase the competitiveness of retail markets. This paper compares two rules for pricing such monopoly inputs: marginal cost pricing (MCP) and generalized efficient component pricing rule (GECPR). The GECPR is not a fixed price, but is a rule that determines the input price to be paid by the entrant from the entrant's retail price. Comparing the retail market equilibrium under MCP and GECPR, the GECPR leads to lower equilibrium retail prices. If the incumbent is less efficient than the entrant, the GECPR also leads to lower production costs than does the MCP rule. If the incumbent is more efficient than the entrant, however, conditions may exist in which MCP leads to lower production costs than does the GECPR. The analysis is carried out assuming either Bertrand competition, quantity competition, or monopolistic competition between the incumbent and entrant in the downstream market.     

Market Size,Local Sourcing and Policy Competition for Foreign Direct Investment

This paper analyzes policy competition for a foreign‐owned monopolist firm between two asymmetric countries. In particular, one country has a larger economy than the other country. At the same time, the small country produces an intermediate good for the final good production, while the large country does not. We show that whether a country will win foreign direct investment (FDI) competition is determined by the interaction between relative transport costs of intermediate and final goods and the market size of the large country relative to that of the small country; and policy competition for FDI may Pareto weakly improve national welfare of the competing countries.     

Strategic sourcing for entry deterrence and tacit collusion

By sourcing key intermediate goods to a potential entrant, an incumbent firm can credibly and observably commit to an intense post-entry competition, thereby deterring the entry. At the same time, a collusive effect exists, whereby the entrant’s loss from staying out of the final-good market is compensated through their sourcing transaction. We find that entry-deterring sourcing in general has ambiguous effect on social welfare. However, there exist scenarios where it enhances not only social welfare, but also consumers’ surplus.     

Tax competition for foreign direct investments and the nature of the incumbent firm

We investigate tax/subsidy competition for foreign direct investments (FDI) between countries of different size when a domestic firm is the incumbent in the largest market and we study how the nature (public or private) of the incumbent firm affects policy competition. We show that, differently from the case of a private firm, the country hosting the incumbent always benefits from FDI if the domestic firm is a public welfare‐maximizing firm. We also show that the public firm acts as a disciplinary device for the foreign multinational that will always choose the efficient welfare‐maximizing location. An efficiency‐enhancing role of policy competition may then arise only when the domestic incumbent is a private firm, whereas tax competition is always wasteful in the presence of a public firm.     

Tariffs, licensing and market structure

This paper challenges the conventional wisdom that exclusive owners of an advanced technology are always better off when producing as a monopolist than when competing against another firm. Competition against a less-efficient firm weakens the power that a host country can exert on the incumbent in the form of its tariff policy. We show that this gives a motive for a monopolist to license its technology to another foreign firm. A host country gains more from increased competition if it can induce the foreign incumbent to transfer technology to the host country firm. We show that the host country can do so by tariff commitment. We also discuss the implications of bargaining under licensing and Bertrand competition in the product market. Hence, this paper qualifies and extends the recent work of Kabiraj and Marjit [Protecting consumers through protection: The role of tariff-induced technology transfer. European Economic Review 47, 113-124].     

ECONOMIC AND ENVIRONMENTAL EFFECTS OF REFILL PACKS

It is common sense that refill packs can increase the repeated use of durable goods, reduce resource waste and be conducive to environmental protection. However, their existence also has an economic effect. For instance, we find that the profit of a monopolistic firm will increase as a result of selling the refill packs when the depreciation rate of the durable good is low. In an extension of the model, we point out that there is an entrant that competes with the incumbent in relation to the composite goods and the refill packs. In order to compete in terms of the prices of the composite goods, the incumbent sells the refill packs not only to increase profit, but also to reduce the amount of waste resulting from the durable goods. As for competing in regard to the prices of the refill packs, if the cost of the composite goods is small, then the incumbent's profit from selling the composite goods will increase. By comparing two extensions of the model, we find that the environmental effect of the price competition in regard to the refill packs is greater than the environmental effect of the price competition in relation to the composite goods.     

RJV FORMATION AND STRATEGIC ENTRY ACCOMMODATION*

This article examines the relationship between cost reduction and public goods effect of research joint ventures (RJVs) and strategic entry deterrence. R&D is process innovation à la Kamien, Muller and Zang (1992 ) and R&D cost sharing between the incumbent and the entrant in a RJV can be asymmetric per Long and Soubeyran (2002 ). It is found that conforming with the conventional wisdom, the incumbents prefer to form RJV to deter entry when the entrant is very inefficient. However, if the entrant is moderately inefficient, it is a better choice for the incumbent to accommodate entry by forming a RJV with it. In contrast, if the entrant is very efficient, then the equilibrium RJV structure depends on the magnitude of spillover effect: it is better to deter entry in the case of high spillover effect.     

NATIONAL TREATMENT AT THE WTO: THE ROLES OF PRODUCT AND COUNTRY HETEROGENEITY*

This paper analyzes the World Trade Organization's (WTO's) national treatment (NT) clause in a two‐country model where quality of goods and/or market size are heterogenous across countries. When market size is symmetric across countries, a reciprocal NT agreement (i) benefits the high‐quality country, (ii) hurts the low‐quality country, and (iii) delivers higher aggregate world welfare. However, such an agreement can arise in equilibrium if the high‐quality country's market is relatively bigger and the quality gap between goods is small (i.e., goods are sufficiently alike). The qualitative nature of these results does not change when quality is endogenously determined.     

Foreign competition and social efficiency of entry

We consider social efficiency of firm-entry in the presence of foreign competition. If the labour markets are competitive, entry is insufficient for the domestic country if the transportation cost is low and the marginal costs of the domestic firms are sufficiently higher than the marginal cost of the foreign firm. In the presence of a domestic labour union, entry is always socially insufficient for the domestic country. Hence, the anti-competitive entry-regulation policy may not be justified in an industry facing foreign competition, and it may depend on the transportation cost, the marginal cost difference between the firms and the domestic labour market structure.     

外商直接投资、知识产权保护与发展中国家的社会福利--兼论发展中国家的引资战略

本文在一个由发达国家企业和发展中国家企业所构成的寡头垄断的产量竞争模型中 ,考察了在发达国家企业所进行的产品创新型R&D投资具有溢出效应的情况下 ,发达国家企业对发展中国家的外商直接投资 (FDI)所产生的福利效果。本文发现 ,即使发展中国家拥有生产成本相对低廉的优势 ,发达国家企业对发展中国家的FDI也只有在溢出效应较小时才可能发生。但这种情况下的FDI也可能损害发展中国家的同类竞争企业 ,甚至损害发展中国家的社会福利。当然 ,以上结论并不意味着引进外资必然损害发展中国家的利益 ,外资引进对发展中国家所产生的福利效果 ,在很大程度上取决于FDI的性质 (产品市场的所在国 )、发展中国家成本优势的大小以及它对知识产权的保护力度等因素。     

Competition with asymmetric regulation of mobile termination charges

The aim of this paper is to explore the effectiveness of asymmetric regulation, which allows a new mobile network operator to set higher termination rates than the incumbent operator. We assume that there are two market segments: one in which operators compete on equal terms, with a new technology, and the other in which the entrant is at a disadvantage since the technology it offers is inferior to the incumbent??s. Results show that asymmetric regulation can create favorable conditions that allow the entrant to strengthen its market positioning, and enhance consumer net utilities and social welfare. This highlights the importance of the degree of network asymmetry and the ways in which consumers are split between the two market segments. Lastly, we show that asymmetric regulation can create greater investment incentives for the entrant which could effectively enhance social welfare. These findings can provide useful insights for regulatory policy.     

Entry and Competition in the Postal Market: Foundations for the Construction of Entry Scenarios*

This paper presents a model of entry and imperfect competition, which is inspired by the product differentiation literature and incorporates facts pertaining to the postal sector. There are two operators: incumbent and potential entrant. The entrant offers only one of the products (commercial mail) with a specific technology and delivers only to part of the addressees (located in low cost areas). Its degree of coverage is viewed as a quality attribute; it affects demand and hence market share. The incumbent faces a USO while the entrant is an unregulated profit maximizing firm. To illustrate the potential applications of our approach, we provide some numerical simulations of entry scenarios.     

Optimum tariffs and patent length in a model of North–South technology transfer

We study a developing country's choice of optimum tariffs and patent length in a theoretical model of trade and technology transfer. A Northern firm chooses whether to export or produce a new good in a Southern country. In the absence of patent protection, a high tariff is required to induce FDI. This reduces Southern welfare when the good is imported. The Southern government can combine a positive patent length with tariffs to reduce this loss and induce FDI. Thus Southern countries may have an incentive to protect patents, although never to the same extent as Northern countries.     

Patent Protection,Innovation and Technology Licensing

We show that the common wisdom suggesting higher investment in innovation under a stronger patent protection may not be true if the innovator can license its technology ex‐post innovation. If the initial cost of production is high and the slope of the marginal cost of undertaking innovation is moderate, investment in innovation is maximised at a patent protection that is weaker than the strongest patent protection. Otherwise, strongest patent protection maximises investment in innovation. We also show that welfare is maximised neither at the strongest patent protection nor at the weakest patent protection but at an intermediate patent protection. Our results are important for patent policies.