1986 Reports

Market access and international competition: A simulation study of 16K Random Access Memories

Baldwin, Richard; Krugman, Paul R.

This paper develops a model of international competition in an oligopoly characterized by strong learning effects. The model is quantified by calibrating its parameters to reproduce the U.S.Japanese rivalry in 16K RAMS from 1978-1983. We then ask the following question: how much did the apparent closure of the Japanese market to imports affect Japan's export performance? A simulation analysis suggests that a protected home market was a crucial advantage to Japanese firms, which would otherwise have been uncompetitive both at home and abroad. We find, however, that Japan's home market protection nonetheless produced more costs than benefits for Japan.