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Trade Liberalization and Aftermarket
Services for Imports |
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Jota Ishikawa¡BHodaka Morita¡BHiroshi Mukunoki |
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Working paper |
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Jota Ishikawa |
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We analyze the provision of repair services (aftermarket services
that are required for a certain fraction of durable units after sales)
through an international duopoly model in which a domestic firm and a foreign
firm compete in the domestic market. Trade liberalization in goods, if not
accompanied by the liberalization of service FDI, induces the domestic firm
to establish service facilities for repairing the foreign firm¡¦s products.
This weakens the firms¡¦ competition in the product market, and the resulting
anti-competitive effect hurts consumers and reduces
world welfare. Despite the anti-competitive effect, trade liberalization may also hurt the
foreign firm because the repairs reduce the sales of the imported good in the
product market. Liberalization of service FDI helps resolve the problem
because it induces the foreign firm to establish service facilities for its
own products. |