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Market Size, Product Differentiation and Bidding for New Varieties

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  • Wooton, Ian
  • Ma, Jie

Abstract

We analyse a firm's investment decision in a regional economy composed of two countries. The firm already manufactures a horizontally differentiated good in the region and we determine the firm's equilibrium location choice for the new good and the welfare consequences of fiscal competition between the two countries. The outcome is the result of interactions among market-size, product-differentiation, and import-substitution effects. The first two effects represent the fundamental trade-off facing the firm. The third effect provides each country with an economic incentive to compete for the FDI. Past papers have addressed the market-size and import-substitution effects but, as far as we know, the product-differentiation effect is new to the literature.

Suggested Citation

  • Wooton, Ian & Ma, Jie, 2017. "Market Size, Product Differentiation and Bidding for New Varieties," CEPR Discussion Papers 11943, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11943
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    8. Oscar Amerighi & Giuseppe Feo, 2017. "Tax competition for foreign direct investments and the nature of the incumbent firm," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(4), pages 811-826, August.
    9. Ben Ferrett & Ian Wooton, 2010. "Tax competition and the international distribution of firm ownership: an invariance result," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(5), pages 518-531, October.
    10. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," European Economic Review, Elsevier, vol. 50(7), pages 1891-1907, October.
    11. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
    12. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-371, May.
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    14. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
    15. Jie Ma, 2017. "Double-edged incentive competition for foreign direct investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 282-312, April.
    16. Jie Ma, 2013. "Market Size, Local Sourcing and Policy Competition for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 21(5), pages 984-995, November.
    17. Haufler, Andreas & Wooton, Ian, 2006. "The effects of regional tax and subsidy coordination on foreign direct investment," European Economic Review, Elsevier, vol. 50(2), pages 285-305, February.
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    Cited by:

    1. OKOSHI Hirofumi & MUKUNOKI Hiroshi, 2024. "Keep Your Friends Close and Your Enemies Closer: Network externality and tax competition," Discussion papers 24024, Research Institute of Economy, Trade and Industry (RIETI).
    2. OKOSHI Hirofumi & Kyikyi Thar, 2023. "Backfired Deregulation of Foreign Ownership Restrictions under Fiscal Competition for Foreign Direct Investment," Discussion papers 23059, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    Fdi; Import substitution; Market size; Mnes; Product differentiation;
    All these keywords.

    JEL classification:

    • 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
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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