Endogenous Market Structures in International Trade with Incomplete Information

Endogenous Market Structures in International Trade with Incomplete Information

This paper introduces incomplete information into Horstmann and Markusen`s [1992] model where the determination of the equilibrium market structure is endogenized. Market structure is derived as Nash equilibrium in a simple model with international trade and foreign direct investments. I show that depending on the “quality” of information firms have regarding the environment, e.g., demand conditions, equilibrium market structure can be different from the full information one. Because industry market structure is affected by the information firms have, in addition to tax and trade policies, governments can use informational campaigns to affect industry market structure if by doing so country welfare improves. (JEL: F, D4, D8)