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Market size, product differentiation and bidding for new varities

Author

Listed:
  • Jie Ma

    (University of Business and Economics)

  • Ian Wooton

    (Department of Economics, University of Strathclyde)

Abstract

We analyse a firm's investment 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. We find that the firm's location decision is efficient. Fiscal competition does not affect the location of production but redistributes rents between the firm and the taxpayers of the host country. The implications of endogenous product differentiation and the new good being produced by a competing firm are also considered. As far as we know the tax competition literature has not previously addressed the issue of product differentiation.

Suggested Citation

  • Jie Ma & Ian Wooton, 2019. "Market size, product differentiation and bidding for new varities," Working Papers 1903, University of Strathclyde Business School, Department of Economics.
    • Handle: RePEc:str:wpaper:1903
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    References listed on IDEAS

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    11. 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.
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    Cited by:

    1. 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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