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Italy has a virtual world monopoly in finished ceramic tiles

Paper help Economics Italy has a virtual world monopoly in finished ceramic tiles

Economics

Italy has a virtual world monopoly in finished ceramic tiles

Italy has a virtual world monopoly in finished ceramic tiles (CT), even though it does not have… Show more Italy has a virtual world monopoly in finished ceramic tiles (CT), even though it does not have an endowment of the raw material, clay. China happens to be the country with the best natural endowments of clay used to make CTs. Moreover, many Chinese producers believe that they can produce CTs as good in quality as that of Italy at a significantly lower (labor) cost. Add to that the saving on transportation costs of not having to send the raw material to Italy, and China can potentially export CTs at a lower cost to the rest of the world than Italy does presently. However, China finds it impossible to enter the finished CT business as long as Italy is the incumbent monopolist. (a) Explain using a diagram: “The Chinese government might hope that if their domestic producers could at least start supplying the Chinese market with CTs that would be a springboard for capturing the world market away from Italy. However, the Chinese market is too small to achieve that goal”.%u2028(b) Depict this fact with a diagram: “Now suppose that the Chinese government manages to convince CT importers from Japan and South East Asia to switch from Italian CTs to Chinese CTs. This leads to Chinese producers now having access to a large market: China + Japan + S.E. Asia = East Asia”. In the diagram to show how Chinese producers can wrest the world market away from Italian producers, using the East Asian market as a springboard. • Show less

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