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Power in the Multinational Corporation in Industry Equilibrium

  • Marin, Dalia
  • Thierry, Verdier

Recent theories of the multinational corporation introduce the property rights model of the firm and examine whether to integrate our outsource firm activities locally or to a foreign country. This paper focus instead on the internal organization of the multinational corporation by examining the power allocation between headquarters and subsidiaries. We provide a framework to analyse the interaction between the decision to serve the local market by exporting or FDI, market acces and the optimal mode of organization of the multinational corporation. We find that subsidiary managers are given most autonomy in their decision how to run the firm at intermediate levels of local competition. We then provide comparative statics for changes in fixed FDI entry costs and trade costs, information technology, the number of local competitors, and in the size of the local market.

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Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 209.

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Date of creation: May 2007
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Handle: RePEc:trf:wpaper:209
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  1. Marin, Dalia, 2006. "A New International Division of Labour in Europe: Outsourcing and Offshoring to Eastern Europe," CEPR Discussion Papers 5447, C.E.P.R. Discussion Papers.
  2. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  3. Pol Antras & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," Harvard Institute of Economic Research Working Papers 2067, Harvard - Institute of Economic Research.
  4. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  5. Diego Puga & Daniel Trefler, 2005. "Wake Up and Smell the Ginseng: The Rise of Incremental Innovation in Low-Wage Countries," NBER Working Papers 11571, National Bureau of Economic Research, Inc.
  6. Dalia Marin & Thierry Verdier, 2008. "Power Inside The Firm and The Market: A General Equilibrium Approach," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 752-788, 06.
  7. Dalia Marin & Thierry Verdier, 2003. "Globalization and the "New Entreprise"," DELTA Working Papers 2003-31, DELTA (Ecole normale supérieure).
  8. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  9. repec:hrv:faseco:4784031 is not listed on IDEAS
  10. Marin, Dalia & Verdier, Thierry, 2007. "Competing in Organizations: Firm Heterogeneity and International Trade," CEPR Discussion Papers 6342, C.E.P.R. Discussion Papers.
  11. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  12. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
  14. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  15. repec:hrv:faseco:4784029 is not listed on IDEAS
  16. Ottaviano, Gianmarco & Turrini, Alessandro Antonio, 2003. "Distance and FDI When Contracts are Incomplete," CEPR Discussion Papers 4041, C.E.P.R. Discussion Papers.
  17. Marin, Dalia & Verdier, Thierry, 2008. "Corporate Hierarchies and the Size of Nations: Theory and Evidence," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 227, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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