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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)
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  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 ].
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