Page 137 - Global Political Economy_Understanding The International Economic Order

CHA PTER F IVE
eventually be dominated by only a few firms, and this means that
their behavior can make a difference and alter the decisions of other
firms. Ifthere is imperfect or oligopolistic competition in particular
economic sectors, then monopoly rents or abnormally high profits
can exist in that sector, and these rents or superprofits can be cap-
tured by a few firms or even by just one firm. 41
The central idea ofthe new strategic trade theory (STT) is that
firms and governments can behave strategically in imperfect global
markets and thereby improve a country’s balance oftrade and na-
tional welfare. It assumes that some markets are characterized by im-
perfect or oligopolistic competition, and that this situation can create
a strategic environment in which there is only a small number of
players. Oligopolistic firms can and do consciously choose a course
ofaction that anticipates the behavior of their competitors. Ifsuccess-
ful, this enables them to capture a much larger portion of the market
than would be possible under conditions ofperfect competition. Two
ofthe most important strategies used to increase a firm’s long-term
domination ofan oligopolistic market are dumping (selling below
cost to drive out competitors in the product area) and preemption
(making huge investments in productive capacity to deter others from
entering the market).
Imperfect or oligopolisitc competition is most likely to occur in
certain high-tech industries characterized by economies ofscale and
learning by doing. These include the aerospace, advanced materials,
computer and semiconductor, and biochemical industries; these tech-
nologies, ofcourse, are identified by all governments as the com-
manding heights ofthe information economy. Most ofthem are dual
technologies, since they are ofparticular importance both to military
weaponry and to economic competitiveness. Therefore, many nations
consider it essential, for both commercial and security reasons, to
take actions that will ensure that they have as strong a capability as
possible in such technologies.
The device ofpreclusive investment provides an example of the
application ofstrategic trade theory; in such a situation, investment
by a domestic firm in a protected home market can give the firm an
overwhelmingly competitive position within that economy, a position
that can deter investment by other countries in that industrial sector.
Government policies may provide a national firm with decisive ad-
vantages in global markets; indeed, Henry Rosovsky and other econo-
mists have argued that the strategy of“import protection in order to

41
A monopoly rent is an excess return on a resource.
124