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Competition for multiproduct firms

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  • Hong Feng
  • Jie Ma
  • Yang Yue

Abstract

We use a first‐price menu auction approach to studying a fiscal competition between two countries of different sizes to attract a foreign monopolist intending to supply two vertically differentiated products in a regional economy composed of the same two countries. Market size and cannibalization exclusively determine the firm's location choice. Though import substitution provides each country with an incentive to bid for FDI, this does not affect the firm's location decisions. As a result, fiscal competition for FDI only involves transfers between the host country/countries of FDI and the firm. We also report novel welfare effects of FDI competition.

Suggested Citation

  • Hong Feng & Jie Ma & Yang Yue, 2023. "Competition for multiproduct firms," Review of International Economics, Wiley Blackwell, vol. 31(3), pages 904-930, August.
    • Handle: RePEc:bla:reviec:v:31:y:2023:i:3:p:904-930
    DOI: 10.1111/roie.12648
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    References listed on IDEAS

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