Implementing Market Access
Kala Krishna, Suddhasatwa Roy, Marie Thursby
NBER Working Paper No. 5593
The outcome of trade policies to increase access for foreign firms to the home country's market is shown to be sensitive to the implementation procedure used. The importance of the timing of moves between government and firms is highlighted by focusing on taxes and subsidies to implement minimum market share requirements. Both taxes and subsidies chosen by the home government after firms have picked prices create powerful incentives for firms to raise prices - effects that are similar in nature to those found with quotas/VERs. We show that some degree of imprecision in implementing the target engenders less anticompetitive outcomes relative to perfect enforcement.
Published: Review of International Economics, Vol.6, no.4 (1998): 529-544.