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Impose a quota

1.-You are the manager of the only firm worldwide that specializes in exporting fish products to Japan. Your firm competes against a handful of Japanese firms that enjoy a significant first-mover advantage. Recently, one of your Japanese customers has called to inform you that the Japanese legislature is considering imposing a quota that would reduce the number of pounds of fish products you are permitted to ship to Japan each year. Your first instinct is to call the trade representative of your country to lobby against the import quota. Is following through with your first instinct necessarily the best decision? Explain.

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My answer is it depends. Let me explain both sides.

Before we look at how your firm should react, you should always know that imposing a quota is not socially optimal (i.e. not good for Japanese citizens) because citizens should be allowed to freely choose whether they like domestic fish or imported fish. By restricting imports, the Japanese citizens can not longer freely choose (because there are limited quantities of imported fish available to them), and hence bad for the citizens.

Now, we look at ...