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Industrial policy to develop a multi-firm industry

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Melkonyan, Tigran A., Banks, Dwayne and Wendel, Jeanne (2017) Industrial policy to develop a multi-firm industry. Journal of Industry, Competition and Trade, 17 (3). pp. 283-303. doi:10.1007/s10842-016-0242-z ISSN 1573-7012.

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Official URL: http://doi.org/10.1007/s10842-016-0242-z

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Abstract

AbstractGovernments face pressure to act when coordination and learning externalities block development of otherwise-profitable industries that would produce merit goods for the domestic market. A short-term subsidy that offsets these externalities could potentially jump-start a multi-firm industry, if the subsidy induces a pioneer firm to enter and then the pioneer’s first-period output generates coordination and learning externalities. These externalities could induce subsequent entry by input suppliers and/or competitors. However, empirical evidence raises questions about the ability of governments to use short-term subsidies to jump-start new industries. We explore one explanation for the difficulty of jump-starting new industries: the subsidy could generate counter-productive incentives for the pioneer firm to prevent entry of additional firms. We model the jump-start strategy and examine whether coupling a short-term fixed subsidy with a per-unit subsidy can achieve the objective of creating a multi-firm industry.

Item Type: Journal Article
Subjects: H Social Sciences > HD Industries. Land use. Labor
Divisions: Faculty of Social Sciences > Warwick Business School
SWORD Depositor: Library Publications Router
Library of Congress Subject Headings (LCSH): Competition, International., Industrial policy., Public investments., Subsidies., International business enterprises -- Government policy., Technological innovations -- Economic aspects., Free enterprise., Competition, International -- Government policy.
Journal or Publication Title: Journal of Industry, Competition and Trade
Publisher: Springer US
ISSN: 1573-7012
Official Date: September 2017
Dates:
DateEvent
September 2017Published
23 January 2017Available
21 December 2016Accepted
Volume: 17
Number: 3
Page Range: pp. 283-303
DOI: 10.1007/s10842-016-0242-z
Status: Peer Reviewed
Publication Status: Published
Reuse Statement (publisher, data, author rights): ** From Springer Nature via Jisc Publications Router. ** History: received 11-08-2016; rev-recd 27-11-2016; accepted 21-12-2016; epub 23-01-2017; ppub 09-2017. ** Licence for this article: http://creativecommons.org/licenses/by/4.0/
Access rights to Published version: Open Access (Creative Commons)
Date of first compliant deposit: 10 April 2018
Date of first compliant Open Access: 10 April 2018

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