Trade Policies and Outsourcing for Market Dominance

Trade Policies and Outsourcing for Market Dominance

This paper attempts to analyze the effect of trade policies on the prices of both final and intermediate goods, when outsourcing part of production is a means used to obtain the market dominance in the host country. The market dominance could be granted by the host country to a foreign firm as a reward for its transferring of technology through outsourcing. It is found that when the subsidy by the host country on the production of intermediate inputs is substantial and if the demand curve is concave, a reduction in tariff on the final goods would lead to a rise in the price of both the final and intermediate goods. Consequently, this produces an anti-competitive result.