23 research outputs found
Trade and Imperfect Competition in General Equilibrium
This paper employs a general equilibrium model of imperfect competition and trade in which capital is used to establish firms and labor is used for production. We show that two different types of equilibria may exist, one with factor price equalization and one with different factor prices. When factor prices are equalized, trade improves welfare under relatively mild conditions. However, if factor prices differ, these conditions are not sufficient for mutual gains from trade.imperfect competition, international trade, general equilibrium
The determinants of foreign direct investment outflows from the European Union countries.
This paper employs a panel econometric model, and takes the horizontal and vertical FDI approach into account in the same empirical specification to scrutinize the determinants of FDI outflows from the selected EU countries at the industry level. We show that both cost related factors and potential demand are important and they mostly significantly affect FDI outflows from these selected EU countries.Foreign Direct Investment; Environmental Sensitivity; European Union Countries.
A Model of Competition between Multinationals
This study models competition between multinationals, sequentially entering
the same market, and analyzes how they choose their entry modes between trade,
greenfield investment and acquisition, and how competition amongst them affects their choices.
I discuss two important factors that lead a multinational whether or not to acquire a
local firm: the intensity of pre- and post-acquisition competition. The former
determines both the acquisition price and the profitability of the next best alternative entry mode,
whereas the latter determines the extent of business stealing by the rival. The results point to
a non-linear relationship between trade and investment liberalization and foreign direct investment
A Model of Competition between Multinationals
This study models competition between multinationals, sequentially entering
the same market, and analyzes how they choose their entry modes between trade,
greenfield investment and acquisition, and how competition amongst them affects their choices.
I discuss two important factors that lead a multinational whether or not to acquire a
local firm: the intensity of pre- and post-acquisition competition. The former
determines both the acquisition price and the profitability of the next best alternative entry mode,
whereas the latter determines the extent of business stealing by the rival. The results point to
a non-linear relationship between trade and investment liberalization and foreign direct investment
The Myth of Profit-Shifting Trade Policies
Since Dixit (1984), it is well accepted that a home country's best policy is
to ban imports in an oligopolistic market if the resulting monopoly has a cost advantage over imports.
This note (i) provides a formal proof and (ii) extends this result to symmetric firms. When domestic
instruments are available, the optimal policy in a non-cooperative game is to subsidize local production
such that it completely replaces imports. This policy is also globally first-best
Optimal Acquisition Strategies in Unknown Territories
This paper investigates the optimal acquisition strategy of a foreign
investor, who wants to acquire one out of two local firms, under incomplete information.
The response to acquisition offers is also a signal on firm productivity,
affecting future competition. We identify a competition effect (firms compete for acquisition) and a revelation
effect (firms reveal their productivities). These effects reduce the rejection profits and increase the acceptance
probability. If the investor makes simultaneous offers, the revelation effect is a potential
threat because a firm may signal low productivity, but may not be acquired. If, however,
the investor makes offers sequentially, this threat does not exist, making sequential offers the
optimal acquisition strategy
The Myth of Profit-Shifting Trade Policies
Since Dixit (1984), it is well accepted that a home country's best policy is
to ban imports in an oligopolistic market if the resulting monopoly has a cost advantage over imports.
This note (i) provides a formal proof and (ii) extends this result to symmetric firms. When domestic
instruments are available, the optimal policy in a non-cooperative game is to subsidize local production
such that it completely replaces imports. This policy is also globally first-best
Factor Price Differences in a General Equilibrium Model of Trade and Imperfect Competition
Except for the famous Dornbusch-Fischer-Samuelson (DFS) models, most general
equilibrium models of trade rely on factor price equalization. The DFS models
demonstrate the gains from trade without factor price equalization under perfect
competition. This paper employs a general equilibrium model of oligopolistic
competition which implies distortions both at the intensive and extensive
margin. If factor prices do not equalize, imperfect competition will not reverse
the specialization pattern. However,
mutual gains from trade are not guaranteed, but one country may be worse off by
trade
Foreign market entry, upstream market power, and endogenous mode of downstream competition
In a differentiated duopoly model of trade and FDI featuring both horizontal and ver tical product differentiation, we examine whether globalization and trade policy mea sures can generate welfare gains by leading firms to change their mode of competition.
We show that when a high-quality foreign variety is manufactured under large frictions
due to upstream monopoly power, a foreign firm can become a Bertrand competitor
against a Cournot local rival in equilibrium, especially when the relative product quality of the foreign variety is sufficiently high and trade costs are sufficiently low (implying higher input price distortions due to double marginalization). Our results suggest that such strategic asymmetry is welfare improving and that the availability of FDI as
an alternative to trade can make welfare-enhancing strategic asymmetry even more
likely, especially when both input trade costs and fixed investment costs are sufficiently low and trade costs in final goods are sufficiently large
Foreign Direct Investment as a Signal
This paper models competition among multinational firms in an environment
of firm heterogeneity, incomplete cost information and strategic interaction. In
this context,
FDI serves as a signal of productivity: when firms sort into exporters and
multinationals, they also show whether they have low or high productivity.
We show that the signaling effect of FDI increases the FDI incentive as firms
would like to avoid sending a low productivity signal