TRANSFER OF PRICING AND THE NATURE OF THE SUBSIDIARY FIRM

This paper shows that with subsidiaries of different nature due to locational characteristics, the multinational firm not only charges different transfer prices, but also supplies different levels of the intermediate input to the downstream branch. In particular, interior transfer prices are possible. In addition, we also conduct several interesting comparative statics analysis

Labor-Management Bargaining, Labor Standards and International Rivalry

Using the labor union's bargaining power as an indication of government policy on labor standards issues, we analyze the competition between a domestic (North) firm and a foreign (South) firm, and their relationship with optimal labor standards (LS). First, we show that the optimal level of LS is higher when labor unions are employment-oriented than when they are not. Second, it is higher under free trade than under the optimal tariff system if labor unions are employment-oriented. Third, 'a race to the bottom' of LS occurs in the case of wage-oriented unions. Fourth, the North's imposing a tariff to force the Southern government to raise its LS is effective only if the Southern union is wage-oriented. In order to raise Southern LS, both countries may need some deeper form of economic integration, if the North does not want to abandon its free trade system.Labor Standards, Race to the Bottom, Tariff, Economic Integration, Labor Union

A NOTE OF THE IMPACTS OF PRICE SHOCKS ON WAGES IN UNIONIZED ECONOMIES

This paper shows that in the short run, following an exogenous price shock, the union wage always increases, while the competitive wage may decrease, which contrasts the case in which labor is not unionized

Competing to Invest in the Foreign Market

This paper analyzes foreign-direct-investment (FDI) competition in a three-country framework: two Northern countries and one Southern country. We have in mind the competition of Airbus and Boeing (or GM and Volkswagen) in a developing country. The host-country government endogeneizes tariffs, while Airbus and Boeing choose domestic output and FDI. Wages and employment in the home countries are bargained over between labor and management. We find that in the unique equilibrium, both Airbus and Boeing compete to undertake FDI in the developing country. This arises because the host country can play off the multinational corporations, which in turn stems from three factors: (a) Oligopolistic rivalry; (b) Quid prod quo FDI, which reduces tariffs; (c) Strategic outsourcing-FDI drives down the union wages at home if the host-country wage is sufficiently low. However, if the host-country wage is sufficiently high, then the union wage increases under FDI. In such cases, FDI competition benefits the multinationals, the labor unions as well as the host country. If Boeing undertakes FDI while Airbus does not, then: (i) Boeing's market share and profits are higher than Airbus's; (ii) the tariff facing Boeing is lower than that facing Airbus.FDI Competition, Quid Pro Quo FDI, Labor Union, Political Economy, Emerging Markets

Multimarket linkages, buyer power, and the productivity puzzle

This paper examines the relationship between firms' productivity improvement and the volume of exports, and shows that it can be sometimes negative. Specifically, we simultaneously take into account intermediate retailers (i.e., vertically) and multimarket linkages (i.e., horizontally). We find that an improvement of the manufacturing productivity affects the bargained wholesale prices in opposite directions in asymmetric markets, causing retailers to make corresponding changes that look surprising. This result can explain for the empirical "left productivity puzzle" found in Ghemawat et al. (2010). Related to this issue is the relationship between buyer power (caused by a retail merger) and profitability. Contrary to the existing literature, in an extended setup, we find that the merger between the downstream duopolists does not improve their profits if their bargaining power is strong vs. upstream suppliers.

Profit Raising Entry

Common wisdom suggests that entry reduces profits of the incumbent firms. On the contrary, we show that if the incumbents differ in marginal costs and the entrants behave like Stackelberg followers, entry may benefit the incumbents who are relatively cost efficient while it always hurts the cost inefficient incumbents. However, the outputs of all incumbents may be higher under entry.Entry; Profit; Stackelberg Competition

Trade and Firm Heterogeneity In A Quality-Ladder Model of Growth

The present paper explores the effect of trade liberalization on the level of productivity as well as the rate of productivity growth in an R&Dbased model with heterogeneous firms. We introduce new and plausible features that are absent in existing studies. First, technical progress takes the form of continual quality improvement of products over time. Second, firm entry and exit are endogenously determined due to creative destruction of products traded. In this framework, we demonstrate that a lower transport cost or export sunk cost unambiguously reallocates resources from non-exporting industries to R&D as well as exporting industries. This means that trade liberalization increases the level of manufacturing productivity and the rate of technical progress. These results are found to be robust in an extended model with population growth without scale effects. In extensions of the basic model, we also endogenize the ex ante distribution of firm heterogeneity and examine the effect of R&D subsidies.

Unionization Structure and the Incentives for Foreign Direct Investment

We examine the effects of unionization in the host country on a firm's choices of entry mode when serving a foreign market, i.e., its incentives for exporting, green-field FDI and merger. If, due to government regulations the merged firm must operate a plant in the host country, we find that the firm does green-field investment under decentralized unions, but chooses a merger under a centralized union. The firm's incentive for FDI (either green-field FDI or merger) compared to exporting is higher under decentralized unions than under a centralized union. In contrast, if the merged firm can use its plant from any country, a merger may occur even under decentralized unions, but in this case the merged firm uses the plant in the nonunionized country. Under a centralized union, merger always arises if the merged firm can produce in any country, but it chooses to produce in the host country if the market is small.Labor Unionizations, Entry mode, Export, Merger, FDI

Commercial Policy and Foreign Ownership

To serve the domestic market, foreign multinationals often not only export there but also control local firms through FDI. This paper examines the effects of trade and industrial policies on prices, outputs, profits, and welfare when exports and FDI coexist. Specifically, we focus on the case in which a foreign firm has full control of a local firm through partial ownership. Cross-border ownership on the basis of both financial interests and corporate control leads to horizontal market-linkages through which tariffs and production subsidies may harm a locally-owned firm but benefit a foreign firm. Foreign ownership regulation benefits a locally-owned firm.foreign direct investment, corporate control, tariffs, production subsidies, ownership regulation