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Foreign entry and domestic welfare

Research paper by Martin Richardson

Indexed on: 01 Jun '98Published on: 01 Jun '98Published in: Review of World Economics



Abstract

Foreign Entry and Domestic Welfare. — This paper discusses the consequences for domestic welfare of entry by foreign firms into a domestic market. A simple Bertrand model with differentiated products and a Cournot model with homogeneous goods are investigated and it is shown that welfare is non-monotonic in foreign entry in both cases. A “little” entry is harmful but a “lot” is beneficial. It is shown that this depends on the number of domestic firms in the industry.