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Imperfect competition, productivity differences and proximity concentration trade-offs

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  • Andrzej Cieślik

Abstract

In this paper we study how productivity differences between foreign and home country firms affect the proximity-concentration trade-off in two imperfectly competitive frameworks: the Cournot duopoly and the monopoly that occurs when one of the competing firms is driven out of the market. We identify the conditions necessary for exporting and foreign direct investment (FDI), depending on the competing firms’ marginal cost differences as well as the trade cost and the fixed sunk cost of FDI. We demonstrate that five possible equilibria: an incumbent monopoly equilibrium, a FDI duopoly equilibrium, a FDI monopoly equilibrium, an exporting duopoly equilibrium and an exporting monopoly equilibrium, may emerge depending on various combinations of the key parameters of the model.

Suggested Citation

  • Andrzej Cieślik, 2015. "Imperfect competition, productivity differences and proximity concentration trade-offs," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 40.
  • Handle: RePEc:eko:ekoeko:40_7
    DOI: 10.17451/eko/40/2015/106
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    File URL: http://ekonomia.wne.uw.edu.pl/ekonomia/getFile/753
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    References listed on IDEAS

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    Cited by:

    1. repec:krk:eberjl:v:5:y:2017:i:1:p:151-167 is not listed on IDEAS
    2. Andrzej Cieslik, 2016. "Exports Versus Fdi In Smith-Motta Framework," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 11(2), pages 189-218, June.

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