Procompetitive Market Access

Kala Krishna, Suddhasatwa Roy, Marie Thursby

NBER Working Paper No. 6184
Issued in September 1997
NBER Program(s):   ITI

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.

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Published: Business and Economics for the 21st Century, Vol.1 (1997): 333-342.

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