International Vertical Integration: A Positive Model of Endogenous Structure
This paper provides a simple theoretical model in which a vertically-distorted industry structure is considered in an international setting. Fixed costs, existing in both the final good and intermediate good sectors, result in a bilateral externality. Production as well as equity ownership potentially crosses national boundaries. Differing parameter specifications give rise to various market structures as industrial organization is endogenous to the model. As a result, marginal changes in parameter specifications may lead to jumps in plant ownership and location decisions.
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