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A game theoretic-model of multinational firm location

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  • José Pedro Pontes

Abstract

The paper deals with a location game involving two symmetric firms. The players choose strategies in a spatial setting made up by two asymmetric countries,where the smallest country has a labour cost advantage. Determination of equilibrium location patterns enables to assess under what conditions both forms of foreign direct investment (horizontal and vertical) will take place in terms of a set of parameters (namely market size, relative size of the small country, and extent of its cost advantage). The firms interact through input transactions that bring about multiplicity of equilibria. An application to the evolution of the Portuguese car industry is performed.

Suggested Citation

  • José Pedro Pontes, 2000. "A game theoretic-model of multinational firm location," Working Papers Department of Economics 2000/02, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
  • Handle: RePEc:ise:isegwp:wp22000
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    Keywords

    Multinationals; Firm location; Noncooperative games; New economic geography;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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