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The strategic proximity-concentration trade-off with multiproduct multinational firms

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  • Minerva, Gaetano Alfredo

Abstract

I study the proximity-concentration trade-off faced by two multiproduct multinational companies (MNCs) that operate in two countries under horizontal product differentiation. In this context, characterized by two-way trade and foreign direct investment, the trade-off regulates the domestic stock of investment (concentration) against the foreign stock (proximity) in a way that is centred around the exploitation of large market shares and market power. I show that MNCs follow pricing-to-market that mirrors the proximity-concentration trade-off, and I characterize how market shares, prices, and markups react to changes in investment and trade frictions. Endogenous variables turn out to be closely interrelated across markets and firms.

Suggested Citation

  • Minerva, Gaetano Alfredo, 2023. "The strategic proximity-concentration trade-off with multiproduct multinational firms," International Economics, Elsevier, vol. 174(C), pages 198-220.
    • Handle: RePEc:eee:inteco:v:174:y:2023:i:c:p:198-220
    DOI: 10.1016/j.inteco.2023.03.007
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    More about this item

    Keywords

    Foreign direct investment; Multiproduct firms; Multinational companies; Oligopoly; Pricing-to-market; Proximity-concentration;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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