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Impact of Foreign Firms on Domestic Competition

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Provide an analysis of the following question:
Does the presence of foreign firms help or hurt domestic competition? Give an example and be sure to describe whether the firms collaborate or compete for market share. It should be about two pages, and support your analysis by referencing and citing at least three credible sources.

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Solution Summary

This solution explains the impact of foreign firms on domestic competition. The sources used are also included in the solution.

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Step 1
The presence of foreign firms hurts domestic competition. The example is the automobile industry in the United States. The domestic competition has to use factors of production available in the United States and use available raw materials. If foreign firms are allowed, they can use factors of production from anywhere in the world and compete on price. The effect can be devastating and the local competition can be wiped out. In the US each of the big three US automakers, namely the General Motors, Ford Motor Company, and Chrysler requested emergency loans to address cash shortages. Of these General Motors and Chrysler faced bankruptcy and liquidation. The US government had to give financial bailout support to allow the companies to restructure debt through Chapter 11 bankruptcy.

Step 2
Domestic industry was out-competed by foreign carmakers such as Toyota. Foreign carmakers were able to perform better because ...

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