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Strategic trade policy and the home bias in firm ownership structure

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  • Huck, Steffen
  • Konrad, Kai A.

Abstract

In this note we consider the preferences of a profit maximizing firm for international ownership in a world in which firms compete in an international Cournot oligopoly, and in which countries use strategic trade policy. We find that firms prefer national ownership and show that full indigenisation occurs in the equilibrium. -- Die internationalen Beteiligungsverhältnisse eines Unternehmens bestimmen die internationale Verteilung der Profite des Unternehmens. Die Beteiligungsverhältnisse beeinflussen deshalb die Anreize für nationale Subventionspolitik im Rahmen strategischer Außenhandelspolitik. In der vorliegenden Arbeit wird untersucht, welche internationalen Beteiligungsverhältnisse ein gewinnmaximierendes Unternehmen bevorzugen würde, könnte es die internationale Zusammensetzung seiner Eigner wählen. Es wird gezeigt, dass in einem internationalen Cournot-Oligopol ein Gleichgewicht der Beteiligungsverhältnisse existiert, in dem jedes Unternehmen nur Personen als Eigner hat, die in dem gleichen Land ansässig sind, in dem sich der Sitz des betreffenden Unternehmens befindet. Das Ergebnis leistet einen Beitrag zur Erklärung des empirisch wohlbekannten Sachverhalts, wonach die internationale Portfoliodiversifikation von Investoren weitaus geringer ist, als es einer optimalen Risikostreuung entsprechen würde.

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Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Processes and Governance with number FS IV 02-25.

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Date of creation: 2002
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Handle: RePEc:zbw:wzbmpg:fsiv0225

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Keywords: Strategic trade; international ownership; Cournot oligopoly; home bias;

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References

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  1. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
  2. Jonathan Eaton & Gene M. Grossman, 1983. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  3. Roger H. Gordon & A. Lans Bovenberg, 1994. "Why is Capital so Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," NBER Working Papers 4796, National Bureau of Economic Research, Inc.
  4. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  5. Feeney, JoAnne & Hillman, Arye L, 2001. "Privatization and the Political Economy of Strategic Trade Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 535-56, May.
  6. Barros, Pedro P. & Cabral, Luis, 1994. "Merger policy in open economies," European Economic Review, Elsevier, vol. 38(5), pages 1041-1055, May.
  7. Adler, Michael & Dumas, Bernard, 1983. " International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-84, June.
  8. Konrad, K.A. & Lommerud, K.E., 2001. "Foreign Direct Investment, Intra-firm Trade and Ownership Structure," Norway; Department of Economics, University of Bergen 219, Department of Economics, University of Bergen.
  9. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-26, May.
  10. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March.
  11. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  12. Welzel, Peter, 1995. "Strategic Trade Policy with Internationally Owned Firms," Bulletin of Economic Research, Wiley Blackwell, vol. 47(3), pages 221-32, July.
  13. Dick, Andrew R., 1993. "Strategic trade policy and welfare : The empirical consequences of cross-ownership," Journal of International Economics, Elsevier, vol. 35(3-4), pages 227-249, November.
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Cited by:
  1. Steffen Huck & Kai A. Konrad, 2003. "Strategic Trade Policy and Merger Profitability," CESifo Working Paper Series 948, CESifo Group Munich.

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