The Impact of Information Barriers on International Markets

This work shows that the existence of asymmetry of information on demand is sufficient for us to observe a product cycle in international markets, under certain conditions. In particular, we derive the conditions under which an informed firm can skew the playing field to its advantage and defer entry to future periods in a multi-period game, where two firms – an incumbent and an entrant – compete for consumers in international markets, and where the incumbent firm has private information on the consumer reservation price for the low-quality product. It is then shown that temporary protection, in the form of tariffs levied on the high-quality product, can accelerate the product cycle, as do mergers. Moreover, blocking mergers when both firms have successfully entered international markets can further accelerate the product cycle. ∗Columbia University — [email protected]. †I am especially indebted to my advisor, Kyle Bagwell, for his insight, comments, and very helpful guidance. I am grateful to Atila Abdulkadiroglu, Jagdish Bhagwati, Ezra Einy, Ori Haimanko, and Ronald Findlay for their very helpful insight and comments. I also am grateful to Sangwon Park, for the many conversations we have had. I thank seminar participants at Columbia University for their helpful comments and suggestions. Any remaining errors are solely my responsibility.