Bidding for Horizontal Multinationals
We present a model in which governments bid for firms by taxing/subsidizing setup costs. Firms choose both the number and the location of the plants they operate, and the equilibrium industry structure is affected by governments' subsidy choices. We show that the endogenous presence of horizontal multinationals attenuates the race to the bottom and yields some results that run counter to traditional findings in the literature. First, in the presence of multinationals, increasing subsidies decrease firms' profits by exacerbating price competition due to more firms going multinational. Second, instead of being always subsidized, firms may actually be taxed in equilibrium. Last, subsidies may become strategically independent policy instruments, instead of being strategic complements. (JEL: F12, F23, H27, H73, R12) (c) 2008 by the European Economic Association.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 6 (2008)
Issue (Month): 6 (December)
|Contact details of provider:|| Web page: http://www.mitpressjournals.org/jeea|
|Order Information:||Web: http://www.mitpressjournals.org/jeea|
When requesting a correction, please mention this item's handle: RePEc:tpr:jeurec:v:6:y:2008:i:6:p:1244-1278. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites)
If references are entirely missing, you can add them using this form.