Fragmentation, welfare, and imperfect competition
نویسنده
چکیده
In this paper, I explore the effect of fragmentation of production processes on social welfare in the imperfectly competitive market. In particular, I examine the welfare properties of fragmentation from the viewpoint of industrialized countries. Firms located at a country decide whether they produce at home or move their production overseas. I show that there exists Nash equilibrium in which all of the firms move production overseas although domestic production is socially desirable. This implies that reverse imports do not necessarily benefit the country. I also discuss the effectiveness of a subsidy for domestic production in improving the social welfare of the country. JEL classification: F12, F23
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