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Foreign Direct Investment In A Two-Tier Oligopoly: Coordination, Vertical Integration, And Welfare

In: Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy

Author

Listed:
  • PING LIN
  • KAMAL SAGGI

Abstract

We study foreign direct investment (FDI) by two independent investors/entrants into a two-tiered oligopolistic industry. An FDI subsidy at a single stage of production can be sufficient to resolve the coordination problem facing investors thereby inducing entry at both stages. However, due to linkage offsetting, FDI at both stages may yield lower domestic welfare than FDI at a single stage. Vertical integration not only solves the coordination problem, it also eliminates double marginalization. But since the integrated multinational does not sell the intermediate to local firms, its entry generates no vertical linkages and can yield lower welfare than FDI by independent firms.

Suggested Citation

  • Ping Lin & Kamal Saggi, 2023. "Foreign Direct Investment In A Two-Tier Oligopoly: Coordination, Vertical Integration, And Welfare," World Scientific Book Chapters, in: Kamal Saggi (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, chapter 9, pages 205-224, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813233027_0009
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    More about this item

    Keywords

    International Technology Transfer; Multinational Firms; Trips; Foreign Direct Investment; Oligopolistic Competition; Vertical Contracts; Intellectual Property Rights;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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