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International and Multinational Strategic Behavior

Bibliographic reference Jacquemin, A.. International and Multinational Strategic Behavior. In: Kyklos : international review for social sciences, Vol. 42, no. 4, p. 495-513 (1989)
Permanent URL http://hdl.handle.net/2078.1/52692
  1. 1. Baumol[1983 , p.494 ] have proposed a definition allowing continuous variations in the extent to which capital costs are sunk: ?suppose that a unit of capital purchased at a price of beta per unit could be sold or utilized elsewhere... for a unit salvage value of alpha |Ml beta. It is possible to parametrize continuously the degree of sunkenness of capital from zero (alpha = beta) to absolute sunkenness (alpha = o)'.
  2. 2. The presentation of reaction functions in terms of R & D expenditure is in fact based on a sequential game of Cournot-Nash type. The first stage is to choose a level of R & D expenditure, and the second stage, a level of production.
  3. 3. In the case of private agents, such a point corresponds to iso-profit curves. In the case of governments, it would be indifference curves corresponding to their utility functions. The point of intersection is of course not necessarily unique.
  4. 4. Brander, and Spencer[1983 ] have shown that an optimal subsidy rate may be such that the Cournot competing firms achieve a profit equal to that which would be achieved by a leader in R & D: the point CN2and S would coincide.
  5. 5. Intervention does not inexorably lead to retaliation. There has been no systematic retaliation against the efforts of OPEC to restrict trade in crude oil.
  6. 6. Intervention by public authorities could therefore be one way of solving the problem of the multiplicity of possible equilibria, which characterizes many imperfect competition models.
  7. 7. SeeBrock, and Magee[1978 ]. Other criteria play a role: the regional concentration of the activity in question, the electoral impact of intervention, trade union power, etc. Interesting European examples have been put forward by Verreydtand Waelbroeck[1982].
  8. 8. For the Japanese case, seeNambuJacquemin, and Dewez[1981 ], where it can be seen that many sectors are involved and that the average duration of these cartels is ten years.
  9. 9. The Cournot-Nash equilibria, where these different situations are envisaged, are studied in D'Aspremontand Jacquemin(1988 ].
  10. 10. This section has been written with the collaboration of S. Presa, European Commission, DG II.
  11. 11. In his review of Williamson'sbook on ?The Economic Institutions of Capitalism?, Baumol[1986] rightly underlines that the transaction cost analysis requires three necessary conditions: asset specificity, limits on information and calculation ability, willingness to profit at the expense of others. Hence, ?the Williamson world, characterized as it is by heavy sunk costs, is vulnerable to well-known problems of market imperfections such as monopolization and strategic behaviour? (p.282 ).
  12. 12. His profit net of the specific sunk costs of direct investment could be higher than the one obtained in CNA. AS forFigure 1, Figure 3is only one element of a multistage game that has to be constructed. This type of analysis has been made by Smith[1987].
  13. 13. Examples of useful quantitative models of trade under imperfect competition are provided in D'Aspremont, Jacquemin, Gabszewicz[1988 ].
  14. 14. In a situation of imperfect competition, three potential additional gains from trade liberalisation have been identified: greater production efficiency through enlargement of the market, a reduction in domestic monopoly power and an enlargement of the diversity of products [see e. g.Jacquemin, 1982 ].
  15. D'Aspremont C., American Economic Review, 78, 1133 (1988)
  16. D'Aspremont C, European Economic Review, 32 (1988)
  17. Baumol W., American Economic Review, 73, 491 (1983)
  18. Baumol William J., Williamson O. E., Williamson's The Economic Institutions of Capitalism, 10.2307/2555390
  19. Brander James A., Spencer Barbara J., Strategic Commitment with R&D: The Symmetric Case, 10.2307/3003549
  20. Brock W., American Economic Review, 68, 246 (1978)
  21. Caves R., International Economic Policy: Theory and Evidence (1979)
  22. Dixit Avinash, The Role of Investment in Entry-Deterrence, 10.2307/2231658
  23. Dunning J. H., European Merger Control, 1 (1982)
  24. Godek Paul E., Industry Structure and Redistribution through Trade Restrictions, 10.1086/467106
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  26. Jacquemin Alexis, Nambu Tsuruhiko, Dewez Isabelle, A Dynamic Analysis of Export Cartels: The Japanese Case, 10.2307/2232832
  27. Jacquemin A., Kyklos, 35, 75 (1982)
  28. Jacquemin A., The New Industrial Organization (1987)
  29. Krugmann P., Efficiency, Stability and Equity (1987)
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  31. C Shapiro, R. Schmalensee, and R. Willig: ?Theories of Oligopoly Behavior, Chapter 6 ?, in: ), Handbook of Industrial Organization, North-Holland, 1989 .
  32. Smith Alasdair, Strategic investment, multinational corporations and trade policy, 10.1016/0014-2921(87)90018-3
  33. Verreydt E., Import Competition and Response (1982)