The observed restrictions on entry may well be for more prosaic reasons. First, restrictions may be designed so that incumbent suppliers are only gradually exposed to competition-for infant industry type reasons, to facilitate "orderly exit" or simply due to political economy pressures. This explains, for exarnple, why governments have generally been more willing to liberalize mobile in comparison to fixed-line telecommunications services, because mobile telephony has only been recently introduced and there is thus no incumbent to protect. The entry restrictions sometimes benefit not only national firms but also foreign incumbents, as was the case in the international telephone monopoly in Hlong Kong. Other instruments, such as discriminatory subsidies or taxes could be better targeted to achieve protection of the national firm.

Monopoly or oligopoly rents are also sometimes seen as a means to help firms to fulfill universal service obligations through cross-subsidization. However, governments are increasingly devising means of achieving these objectives without sacrificing the benefits of competition - for instance, through the creation of universal service funds which are competitively allocated. In some cases, a form of "investment pessimism" exists, leading to the belief that promises of oligopoly rents are necessary to finance new investment. However, it is not clear why the market structure needs to be determined by policy, unless there are some initial investments the benefits of which may be appropriated by rivals. Finally, governments may seek to raise revenue (or rents for politicians/bureaucrats) by auctioning monopoly or oligopoly rights. This usually explains the promise of exclusive rights prior to privatization. Where competition would be feasible, this amounts to indirect appropriation of consumers' surplus and may deny important dynamic efficiencies consequent upon competition.

Thus, entry restrictions may often be a second or third-best instrument to achieve the objective in question, but are chosen because of constraints such as the inability to raise revenue without economic or political cost. It will probably be difficult to eliminate completely barriers to entry. But it is important to determine that they are indeed necessary-in the sense that more appropriate instruments are not feasible. We return to this issue in Section V.

# _(ii) Are there good reasons to limitforeign ownership and what are the implications?_

Most countries in the region maintain limits on foreign and/or private ownership but it is not easy to find a sound economic rationale for their existence. In so far as the incentive to transfer technology, improve management, etc. is related to the share in profits of an owner, ownership limitations are bound to dampen the incentive and hence adversely affect firmn performance. Why are governnents willing to bear this cost? For three types of reasons. If there are rent-generating restrictions on competition, then the observed limitations on ownership may seek to balance the efficiencystudy finds the existence of very high economies of both scale and scope in the technology used - the parameter estimates even suggest that telecommunications in India is a natural monopoly. However, the incumbent operator displays great inefficiency, leading to a 26 percent increase of the operator's cost of production. Based on these findings, Das concludes that India's market liberalization program, started in the mid-1990s, is justified, but he argues that there may be a need to regulate entry in order to reduce unnecessary duplication of common costs. Moreover, with continued improvements in technology, the fixed costs of entrants are likely to fall, reducing losses of scale economies and thus increasing the costs of entry restrictions.

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