Switching Costs and the foreign Firm’s Entry

This paper considers a two-period model of market entry with homogeneous products and switching costs. It is shown that the procompetitive e ect of a foreign rm's entry (i.e., unilateral trade liberalization) emerges before the entry. Also, conditions that are conducive to a competitive environment in the second-period are shown to yield a less competitive outcome in the rst-period. That is, when the marginal cost of the foreign entrant is relatively low, the rst-period Graduate School of Economics, Kobe University, Rokkodai 2-1, Kobe 657-8501, Japan; e-mail: [email protected]; tel: 81-75-501-3801