Aditya Bhattacharjea

Strategic tariffs and endogenous market structures: Trade and industrial policies under imperfect competition

Abstract This paper examines strategic tariff policy, tariff-induced entry, and endogenous market structures in a developing-country setting. It improves on recent theoretical treatments of optimal trade policy under imperfect competition, by allowing for forward-looking import-substituting investment induced by an anticipated, time-consistent tariff policy. It shows that the optimum tariff is robust across a subset of market structures and cost and demand specifications. However, it will usually involve insufficient or excessive entry by domestic firms, and consequently industrial policy of various kinds is a necessary supplement to strategic tariff policy.

Foreign entry and domestic welfare: lessons for developing countries

This paper examines the effects of foreign entry, in the form of either imports or direct foreign investment, into an oligopolistic market. Incorporating a possible divergence between private and social costs, it first derives simple conditions under which foreign entry reduces welfare relative to autarky. Then, in a multi-firm Cournot model with linear demand and international cost asymmetries, it shows that foreign entry reduces welfare unless it captures a very large share of the home market. However, it also shows that an optimal tariff can prevent this welfare decline. Some suggestive empirical evidence and extensions to differentiated products and to merger analysis are offered. The paper concludes with implications for trade and investment liberalization, as well as for domestic and international competition policy.

Predatory Pricing in Platform Competition: Economic Theory and Indian Cases

Predatory pricing, or pricing below costs in order to drive out one or more rival firms, has a long and convoluted history in both economic theory and antitrust/competition jurisprudence. This already contentious issue has become even more complicated in the context of the new business models, largely based on information and communications technologies (ICT), that come under the rubric of ‘two-sided platforms’. In this chapter, the author first provides a non-technical introduction to the economics of predatory pricing, showing why scholars and competition agencies in the United States and European Union became increasingly sceptical of the feasibility of such a business strategy. The author shows how India’s old Monopolies and Restrictive Trade Practices (MRTP) Act of 1969 remained oblivious of these developments, and how despite several improvements, the poor drafting of the relevant sections of the 2002 Competition Act creates some unnecessary complications. Further, the author provides a non-technical introduction to the economics of platforms, with several examples that are familiar in the Indian context. Implications are derived for the antitrust treatment of predatory pricing. Finally, he discusses how the Competition Commission of India (CCI) has dealt with some of these issues, in recent cases which have involved allegations of predatory pricing against the app-based taxi aggregators Ola and Uber, whose rivalry exemplifies platform competition.