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Tacit Collusion over Foreign Direct Investment under Oligopoly

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Author Info
Collie, David R. () (Cardiff Business School)

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Abstract

A two-country model of the FDI versus export decisions of firms is analysed. The analysis considers both the Cournot duopoly and the Bertrand duopoly models with differentiated products. It is shown that the static game is often a prisoners' dilemma where both firms are worse off when they both undertake FDI. To avoid the prisoners' dilemma, in an infinitely-repeated game, the firms can collude over their FDI versus export decisions. Then, a reduction in trade costs may lead firms to switch from exporting to undertaking FDI when trade costs are relatively high. Also, collusion over FDI may increase welfare.

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File URL: http://www.cardiff.ac.uk/carbs/econ/workingpapers/papers/E2009_8.pdf
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Publisher Info
Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2009/8.

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Length: 36 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:cdf:wpaper:2009/8

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Related research
Keywords: Collusion; Trade Liberalisation; Foreign Direct Investment; Cournot Oligopoly; Bertrand Oligopoly; Infinitely-Repeated Game;

Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
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
M16 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - International Business Administration

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February. [Downloadable!] (restricted)
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    Other versions:
  6. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Blackwell Publishing, vol. 38(113), pages 1-12, January. [Downloadable!] (restricted)
  7. Leahy, Dermot & Pavelin, Stephen, 2003. "Follow-my-leader FDI and tacit collusion," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 439-453, March. [Downloadable!] (restricted)
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    Other versions:
  9. Norman, George & Motta, Massimo, 1993. "Eastern European Economic Integration and Foreign Direct Investment," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 2(4), pages 483-507, Winter.
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    Other versions:
  12. Motta, Massimo & Norman, George, 1996. "Does Economic Integration Cause Foreign Direct Investment?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 757-83, November.
    Other versions:
  13. Collie, David R & Roger Clarke, 2003. "Product Differentiation and the Gains from Trade under Bertrand Duopoly," Royal Economic Society Annual Conference 2003 47, Royal Economic Society. [Downloadable!]
    Other versions:
  14. Smith, Alasdair, 1987. "Strategic investment, multinational corporations and trade policy," European Economic Review, Elsevier, vol. 31(1-2), pages 89-96. [Downloadable!] (restricted)
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This page was last updated on 2009-11-10.

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