Foreign equity caps under two types of competition: Bertrand and Cournot

Abstract

This paper explores foreign equity caps for international joint ventures under different types of competition, i.e., Bertrand and Cournot competition, with product differentiation. We demonstrate that government sets the foreign equity cap at a laxer level under Cournot competition than under Bertrand competition. This result illustrates that the possibility of international joint ventures weakens government's ability to affect firm behavior through the implementation of foreign equity caps.Foreign equity caps Cournot competition Bertrand competiton Product differentiation