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Can We Believe In Cold Showers?, Neil Campbell

Neil Campbell

This paper considers the case of a firm which faces the decision as to whether to invest in a cost-reducing technology with an uncertain return. Under certain conditions the removal of protection can facilitate this investment (a 'cold shower'). It is shown, in the case of Cournot competition, that a cold shower is more likely if a quota rather than a tariff is the protective instrument. It is also shown that a cold shower is more likely if the domestic firm is a Stackelberg leader rather than a Cournot competitior. A Cournot market structure is used to consider a reduction …