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Competition for Firms in an Oligopolistic Industry: Do Firms or Countries Have to Pay?

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  • Haufler, Andreas
  • Wooton, Ian

Abstract

We set up a model of generalised oligopoly where two countries of different size compete for an exogenous, but variable, number of identical firms. The model combines a desire by national governments to attract internationally mobile firms with the existence of location rents that arise even in a symmetric equilibrium where firms are dispersed. As economic integration proceeds, equilibrium taxes decline, switching from positive to negative levels, and then rise as trade costs fall even further. A range of trade costs is identified where economic integration raises the welfare of the small country, but lowers welfare in the large country.

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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 1399.

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Date of creation: Mar 2007
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Handle: RePEc:lmu:muenec:1399

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Keywords: tax and subsidy competition; oligopolistic markets;

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  1. Davies, Ronald B., 2005. "State tax competition for foreign direct investment: a winnable war?," Journal of International Economics, Elsevier, vol. 67(2), pages 498-512, December.
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  8. Ferrett, Ben & Wooton, Ian, 2005. "Competing for a Duopoly: International Trade and Tax Competition," CEPR Discussion Papers 5379, C.E.P.R. Discussion Papers.
  9. John Burbidge & Katherine Cuff & John Leach, 2005. "Tax Competition with Heterogeneous Firms," Working Papers 05001, University of Waterloo, Department of Economics, revised Jan 2005.
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Cited by:
  1. Amegashie, J. Atsu & Ouattara, Bazoumanna & Strobl, Eric, 2007. "Moral Hazard and the Composition of Transfers: Theory with an Application to Foreign Aid," MPRA Paper 3158, University Library of Munich, Germany, revised 06 May 2007.
  2. Nelly Exbrayat, 2008. "The Impact of Trade Integration and Agglomeration Economies on Tax Interactions : Evidence from OECD Countries," Post-Print hal-00270067, HAL.

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