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FDI and International Collusion

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  • Uday Bhanu Sinha

Abstract

We develop a model of international collusion between price-setting oligopolists with both options of trade and foreign direct investment (FDI). First, we show that with one firm in each country cross-hauling of FDI may facilitate international collusion. Then we prove an irrelevance result where multimarket contact with two or more firms and symmetric market size in both countries does not promote international collusion with FDI. Finally, with an asymmetric number of home firms or with different sizes of the markets, FDI may facilitate international collusion. Interestingly, this collusion-enhancing FDI may occur at lower levels of trade costs.

Suggested Citation

  • Uday Bhanu Sinha, 2024. "FDI and International Collusion," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 180(3), pages 529-555.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2024-0026
    DOI: 10.1628/jite-2024-0026
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    More about this item

    Keywords

    FDI; multimarket contact; international cartel; price competition; homogeneous good;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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