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Follow-my-leader FDI and collusion

Author

Listed:
  • Dermot Leahy

    (University College Dublin)

  • Stephen Pavelin

    (University College Dublin)

Abstract

This paper presents a simple model to illustrate the following idea - domestic rivals may be motivated to setup foreign production in the same country because the replication of each other’s foreign direct investment (FDI) facilitates collusive behaviour in the market in which they compete. This implies positive interdependence between firms’ FDI decisions, i.e. foreign investment by one firm brings increased incentive for others to follow-suit. So, we highlight a mechanism that propagates FDI clusters - a flurry of investment from one country, or region, to another.

Suggested Citation

  • Dermot Leahy & Stephen Pavelin, 2001. "Follow-my-leader FDI and collusion," Working Papers 200107, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:200107
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    File URL: http://www.ucd.ie/economics/research/papers/2001/WP01.07.pdf
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    References listed on IDEAS

    as
    1. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(1), pages 1-12.
    2. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
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