Economic Theory

, Volume 62, Issue 4, pp 719–764 | Cite as

Trade liberalization and aftermarket services for imports

  • Jota Ishikawa
  • Hodaka Morita
  • Hiroshi Mukunoki
Research Article


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 foreign direct investment (FDI) in services, 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.


Aftermarket services Trade liberalization Foreign direct investment International oligopoly 

JEL Classification

F12 F13 F23 D43 L13 


  1. Chen, Z., Ross, T.W.: Refusals to deal, price discrimination, and independent service organizations. J. Econ. Manag. Strategy 2, 593–614 (1993)CrossRefGoogle Scholar
  2. Chen, Z., Ross, T.W.: Orders to supply as substitutes for commitments to aftermarkets. Can. J. Econ. 31, 1204–1224 (1998)CrossRefGoogle Scholar
  3. Chen, Z., Ross, T.W.: Refusals to deal and orders to supply in competitive markets. Int. J. Ind. Organ. 17, 399–417 (1999)CrossRefGoogle Scholar
  4. Djajić, S., Kierzkowski, H.: Goods, services and trade. Economica 56, 83–95 (1989)CrossRefGoogle Scholar
  5. Francois, J.F.: Trade in producer services and returns due to specialization under monopolistic competition. Can. J. Econ. 23, 109–124 (1990)CrossRefGoogle Scholar
  6. Francois, J.F., Wooton, I.: Market structure and market access. World Econ. 33, 873–893 (2010)CrossRefGoogle Scholar
  7. Hoekman, B., Mattoo, A.: Liberalizing trade in services: lessons from regional and WTO negotiations. Int. Negot. 18, 131–151 (2013)CrossRefGoogle Scholar
  8. Ishikawa, J., Morita, H., Mukunoki, H.: FDI in post-production services and product market competition. J. Int. Econ. 82, 73–84 (2010)CrossRefGoogle Scholar
  9. Markusen, J.R.: Trade in producer services and in other specialized intermediate inputs. Am. Econ. Rev. 79, 85–95 (1989)Google Scholar
  10. Markusen, J.R., Rutherford, T.F., Tarr, D.: Trade and direct investment in producer services and the domestic market for expertise. Can. J. Econ. 38, 758–777 (2005)CrossRefGoogle Scholar
  11. Wong, C.Y.P., Wu, J., Zhang, A.: A model of trade liberalization in services. Rev. Int. Econ. 14, 148–168 (2006)CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  • Jota Ishikawa
    • 1
    • 2
  • Hodaka Morita
    • 3
  • Hiroshi Mukunoki
    • 4
  1. 1.Faculty of EconomicsHitotsubashi UniversityKunitachiJapan
  2. 2.RIETIChiyodaJapan
  3. 3.School of Economics, UNSW Business SchoolThe University of New South WalesSydneyAustralia
  4. 4.Faculty of EconomicsGakushuin UniversityToshimaJapan

Personalised recommendations