Privatization and entry of a foreign firm with demand uncertainty

Ferreira, Fernanda A.

http://hdl.handle.net/10400.22/4389

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Authors

Ferreira, Fernanda A.

Abstract(s)

We investigate the effects of trade with a foreign firm and privatization of the domestic pubUc firm on an incentive for the domestic firm to reduce costs by undertaking R&D investment, under demand uncertainty. We suppose that the domestic firm is less efficient than the foreign firm. However, the domestic firm can lower its marginal costs by conducting cost-reducing R&D investment. We examine the impacts of entry of a foreign firm, and the effects of demand uncertainty, on decisions upon cost-reducing R&D investment by the domestic firm and how these affect the domestic welfare.