Thursday, August 28, 2008
Posted by D. Daniel Sokol
Frank Stähler, University of Kiel - Economics and Thorsten Upmann, University of Bielefeld - Institute of Mathematical Economics have a paper on Market Entry Regulation and International Competition.
ABSTRACT: 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.