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SWITCHING COSTS AND THE FOREIGN FIRM'S ENTRY*
Author(s) -
KIKUCHI TORU
Publication year - 2009
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2009.02101.x
Subject(s) - economics , marginal cost , homogeneous , outcome (game theory) , liberalization , yield (engineering) , free entry , microeconomics , monetary economics , industrial organization , international economics , market economy , physics , materials science , metallurgy , thermodynamics
In this paper we consider a two‐period model of market entry with homogeneous products and switching costs. It is shown that the pro‐competitive effect of a foreign firm's entry (i.e. unilateral trade liberalization) emerges before the entry. Also, conditions that are conducive to a competitive environment in the second period are shown to yield a less competitive outcome in the first period. That is, when the marginal cost of the foreign entrant is relatively low, the first‐period output of a domestic monopolist is relatively low as well.