Question

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.

Answer 1

No, following the first instinct is not the best decision in this case.

Reason: This is because, despite its pros and cons, there is a high possibility that a quota may actually increase the profits of the foreign seller. This is because with quota, the supply of foreign seller would reduce. Since the seller is competing against only a handful of Japanese firms, its limited supply will make its demand price inelastic, and it would be possible for the seller to increase its price and thus profits, despite limited sales.