Procompetitive Market Access

18 Pages Posted: 10 Apr 1998 Last revised: 29 Oct 2015

See all articles by Kala Krishna

Kala Krishna

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Suddhasatwa Roy

California State University, Fullerton - Department of Economics

Marie C. Thursby

Georgia Institute of Technology - Strategic Management Area; National Bureau of Economic Research (NBER)

Date Written: September 1997

Abstract

The view that U.S. businesses are being unfairly hurt by barriers to access in foreign markets has raised demands for market access requirements (MARs) from within U.S. industry and government alike. We show that, contrary to the prevailing wisdom of the recent literature, MARs can be implemented in a procompetitive manner. The basic idea is that the requirement must be implemented in a way that provides the right incentives for increasing aggregate output or lowering prices. We provide two examples to illustrate this point. In the context of a Cournot duopoly, we show that an implementation scheme in which the U.S. firm receives a pre-announced subsidy if the market share target is met leads to increased aggregate output. In a second example, we show that a MAR on an imported intermediate input can lead not only to increased imports of the intermediate good, but also to increased output in the final good market using the input. The intuition is that increasing output of the final good helps to make the MAR less binding and this reduces the marginal cost of production in the final good market. Thus our results buttress the point made in Krishna, Roy and Thursby (1997) that the effects of MARs depend crucially on the details of their implementation.

Suggested Citation

Krishna, Kala and Roy, Suddhasatwa and Thursby, Marie C., Procompetitive Market Access (September 1997). NBER Working Paper No. w6184, Available at SSRN: https://ssrn.com/abstract=74655

Kala Krishna (Contact Author)

Pennsylvania State University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Suddhasatwa Roy

California State University, Fullerton - Department of Economics ( email )

Fullerton, CA 92834
United States

Marie C. Thursby

Georgia Institute of Technology - Strategic Management Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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