This study introduces a cost-based informational asymmetry into a two-period model where a domestic (incumbent) firm’s behavior in the first period affects the entry decision of a foreign firm in the second period. The effects of import quota policy within this environment are examined and...

The paper demonstrates that the standard prediction on the relation between tariff rates and the mode of foreign entry-exports or direct investment-may not hold in the presence of incomplete information. A foreign firm lacks full information on the cost structure of an informed incumbent firm...