Entry Policy and Entry Subsidies

Reitzes, James D.; Grawe, Oliver R.

doi:10.1111/1467-9396.00195

Cited by 3 publications

(3 citation statements)

References 4 publications

(4 reference statements)

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“…Firstly, while this literature has extensively studied some policy instruments (such as export or import subsidies, state aid, tariffs, quotas, etc.) it has remained largely silent on entry regulation, with the paper by Reitzes and Grawe (1999) being one exception. Secondly, this literature typically assumes oligopolistic market structures and does not focus on the general equilibrium effects of trade.…”

Section: Related Literaturementioning

confidence: 99%

“…It is well known that only a small share of firms that enter an industry survives the first few years of operation (Geroski 1995), hence some upfront government support will go to failing businesses that never succeed in the market. This uncertainty is one reason why public subsidies in support of new firm foundation are typically regarded to be only an imperfect policy option to target market imperfections (Reitzes and Grawe 1999), yet one that is among the most widespread and frequently used instruments of industrial policy in practice (Santarelli and Vivarelli 2002).…”

Section: Introductionmentioning

confidence: 99%

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Subsidizing firm entry in open economies

Pflüger

Suedekum

2013

Journal of Public Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S ABSTRACT Subsidizing Firm Entry in Open EconomiesEntrepreneurs who decide to enter an industry are faced with different levels of effective entry costs in different countries. These costs are heavily influenced by economic policy. What is not well understood is how international trade affects the government incentive to impact on entry costs, and how entry subsidies can be used strategically in open economies. We present a general equilibrium model of monopolistic competition with two (potentially) asymmetric countries and heterogeneous firms where government subsidizes entry of domestic entrepreneurs. Under autarky the entry subsidy indirectly corrects for the monopoly pricing distortion. In the autarky equilibrium these subsidies trigger entry, but they eventually do not lead to more but to better firms in the market. In the open economy there is another, strategic motive for entry subsidies as the tightening of domestic market selection also affects exporting decisions for domestic and foreign firms. Our analysis shows that entry subsidies in the Nash-equilibrium are first increasing, then decreasing in the level of trade openness. This implies a U-shaped relationship between openness and effective entry costs. Merging crosscountry data on entry costs with international trade openness indices we empirically confirm this theoretical prediction.JEL Classification: F12, F13, H25, L11

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Section: Related Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Subsidizing firm entry in open economies

Pflüger

Suedekum

2013

Journal of Public Economics

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“… 5 Reitzes and Grawe (1999) study a multi-region model in which entry in one region is exogenous. Our model considers endogenous entry and policy in both regions.…”

mentioning

confidence: 99%

International coordination of environmental policies: is it always worth the effort?

2019

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We study entry policies as an alternative form of environmental policy. Given the strong political opposition to standard output subsidies and taxes, several countries have recently used entry policies to promote renewable energy technology, such as solar panels and biofuels. We study a two-stage game in which two regulators choose an entry policy (i.e., tax, subsidy or permit) to maximize domestic welfare. Observing the policy, firms decide the region in which to enter and compete as Cournot oligopolists. We find that both domestic (uncoordinated) policies and internationally coordinated policies increase welfare relative to unregulated settings. However, the welfare gains from international policy coordination are only large when the product is extremely clean. These results indicate that the welfare gains of international policy coordination may only offset the costs of negotiation in relatively clean industries.

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Subsidizing Firm Entry in Open Economies

Pflüger

Suedekum

2009

SSRN Journal

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Entry Policy and Entry Subsidies

Cited by 3 publications

References 4 publications

Subsidizing firm entry in open economies

Subsidizing firm entry in open economies

International coordination of environmental policies: is it always worth the effort?

Subsidizing Firm Entry in Open Economies

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