Full text: Policies of Stimulating Private Investment

For the purposes of my theory I need two hypotheses: 
1) Beyond a point the stimulation of private investment 
must lead to the creation of new capacity. 
This is becuase the possibilities of replacing old equipment 
prematurely by technically superior new equipment 
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are getting exhausted,, because you cannot go on 
reducing the life-time of equipment bhks indefinitely. 
2) There is a very strong tendency to dump the output 
of new capacity abroad and not on the home market. 
Firms prefer to leave the oligopolistic equilibrium 
in the home market undist urbed and retain their 
traditional mark up there. Their aggressive behaviour 
is t urned towards the foreign markets where they 
compete with all means especially price comp etition. 
The essential assumption is that firms act as discriminating 
monopolies which charge different prices in different 
markets. They will try to cover their fix cost by sales 
on the home market at conventional mark up. The excess 
will be sold abroad at a lower mark up. 
The objection that this may not be possible in conditions 
like a common market with free trade is only partly 
valid. The goods will not easily flow back unless 
the price difference is fairly big. To bring bark 
the cheapened commidities requires an importer i.e. 
a whole organisation and that cost?a certain margin. 
This explains that in fact goods are often cheaper than 
in the country of origin. The import margin acts like 
a customs duty.

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