Takao Ohkawa

Partial agglomeration or dispersion in spatial Cournot competition

We revisit works by Pal and Matsushima, which, respectively, present different equilibrium locations. We consider nonlinear transport costs and show that Pals result (dispersion) is more robust than Matsushimas (partial agglomeration). Pals result holds true for any transport cost function, while Matsushimas does not hold under strong concavity or convexity of the transport cost function. If we consider sequential move of location, Pals result holds for any transport costs. On the other hand, Matsushimas does not hold except for linear transport cost. We also discuss welfare and show that nonlinearity of the transport cost function yields rich welfare implications.

Does a Bilateral FTA Pave the Way for Multilateral Free Trade

We determine whether a bilateral free trade agreement (FTA) acts as a building block for multilateral free trade (MFT) in a three‐country model with asymmetric domestic markets. Our main conclusions are as follows: (i) A bilateral FTA between two large countries can act as a building block for MFT; (ii) A bilateral FTA between two small countries acts as a stumbling block for MFT; (iii) This FTA can be Pareto improving when a multilateral trade agreement is not feasible.

Does the Excess Entry Theorem Hold in a Differentiated Oligopoly

Though it is generally believed that increasing competition improves social welfare, we are able to show with a Shubik–Levitan demand function for differentiated goods that this is not always the case. Under Cournot and Bertrand competition, market entry increases the equilibrium total output and lowers the equilibrium price in the case of substitutes, but it reduces the total output and raises the price in the case of complements. In the long run, the equilibrium number of firms is excessive and the equilibrium cannot achieve even the second‐best social welfare under either type of competition, regardless of product substitutability or complementarity.

Optiomal tariff policy with endogenous location choice

This paper examines the optimal tariff policy of an importing country when duopoly firms choose to export or undertake foreign direct investment (FDI). We establish that (i) the government sets its optimal tariff rate to encourage FDI when the fixed cost of FDI is low. Choosing FDI creates a Prisoners Dilemma for both firms and is not optimal for the source country; and (ii) when the fixed cost of FDI is high, the optimal tariff is set to induce both firms to choose exports.

On the Incentive for a Self-Interested Policymaker to Mimic the Behavior of a Social-Welfare Maximizer

We consider a government consisting of two policy implementation departments, each of which is self-interested. We examine whether each of these departments disguise itself as a social-welfare maximizer in the sense that it adopts welfare maximization as its “surface” objective to determine the policy variable, although its “true” objective is self-interest maximization under a tariff/subsidy scheme. We also examine whether an increase in the number of departments disguising themselves as welfare maximizers improves welfare. When the cost difference between home and foreign firms is at the intermediate level, the subsidy department does not disguise itself as a benevolent policymaker, whereas the tariff department may do so. In addition, the welfare level in the partial disguise case is lower than that in the no disguise case.

INSUFFICIENT ENTRY OF EMPLOYEE-CONTROLLED FIRMS IN A FREE-ENTRY OLIGOPOLY: INSUFFICIENT ENTRY OF EMPLOYEE-CONTROLLED FIRMS IN A FREE-ENTRY OLIGOPOLY

This study is a theoretical examination of whether employee-controlled firms (ECFs) enter a free-entry oligopolistic market excessively or insufficiently, from the viewpoint of welfare maximization. The excess entry theorem is well known in oligopoly theory. According to this theorem, a greater number of profit-maximizing firms enter a free-entry oligopolistic market than is optimal for welfare maximization. We demonstrate the possibility that insufficient entry arises when ECFs compete in a free-entry market. In particular, we show that if both the demand and cost functions are convex, insufficient ECF entry necessarily occurs. Our results suggest that competition among firms seeking purposes other than profit might lead to insufficient entry because differences in competing firms objectives affect the intensity of market competition.

Government Intervention Brings About Free-Trade Outcomes in the Long Run

We examine the long-run effect of government intervention on economic outcomes in an importing country in a three-country framework with free entry of the importing country’s firms. We establish the following. [1] The long-run equilibrium total output (or price) level under government intervention regime is the same as that under the free-trade regime. Without the imposition of a tariff, the importing country’s welfare is unaffected by any level of export subsidy. [2] In the long-run equilibrium, each exporting country’s government sets a positive subsidy level such that each exporter can attain the equilibrium outcome when it adopts marginal cost pricing.

Endogenous Timing in Trade Policy Under the Three-Country Model

This chapter provides a comprehensive and consistent explanation for the following result: a government with a smaller number of firms becomes a leader and provides a subsidy to home firms, whereas a government with a larger number of firms moves second and imposes a tax on domestic firms in the three-country model. This chapter also presents a comparison of the welfare of each country under free trade and under bilateral intervention, from which we derive policy implications.

Expansion of Free Trade Agreements, Overlapping Free Trade Agreements,and Market Size

This chapter investigates whether the formation of bilateral overlapping free trade agreements (FTAs) between dissimilar countries becomes a building block or a stumbling block for multilateral free trade (MFT). Our main conclusions are as follows. Suppose that a bilateral FTA between symmetric countries is already formed. (i) A bilateral FTA becomes a stumbling block for MFT through overlapping FTAs, while it acts as a building block for MFT through expansion of FTAs when market sizes of member and nonmember countries are quite similar. (ii) When the market size of a nonmember country is smaller than that of member countries, then overlapping FTAs lead to MFT, while FTA expansion may or may not. (iii) If the nonmember country of the original FTA is large, then expansion of the FTA may not achieve MFT, while overlapping FTAs cannot. (iv) When the market size of the nonmember country is quite large compared with member countries, MFT never arises through overlapping FTAs, FTA expansion, or negotiation of a multilateral trade agreement.

Sustainability of Free Trade Agreements Under a Maximum Revenue Tariff

This chapter examines the sustainability of multilateral free trade (MFT) or a bilateral free trade agreement (FTA) in a welfare-maximizing tariff regime compared with that in a revenue-maximizing tariff regime. To do so, we construct a framework consisting of three countries, each of whose markets are segmented, and three firms, each of which supplies its product in the three markets. We examine the sustainability of the FTAs by using a repeated game setting. We establish the following: (1) MFT is less sustainable in a revenue-maximizing tariff regime than in a welfare-maximizing tariff regime, while a bilateral FTA has almost the same sustainability in both regimes. (2) Suppose that a bilateral FTA is formed. Expansion of the FTA is more sustainable in a revenue-maximizing tariff regime than in a welfare-maximizing tariff regime. An FTA may be a building block (a stumbling block) to MFT in a revenue-maximizing tariff regime (a welfare-maximizing tariff regime).