IDEAS home Printed from https://ideas.repec.org/p/trf/wpaper/209.html
   My bibliography  Save this paper

Power in the Multinational Corporation in Industry Equilibrium

Author

Listed:
  • Marin, Dalia
  • Thierry, Verdier

Abstract

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.

Suggested Citation

  • Marin, Dalia & Thierry, Verdier, 2007. "Power in the Multinational Corporation in Industry Equilibrium," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 209, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:209
    as

    Download full text from publisher

    File URL: https://epub.ub.uni-muenchen.de/13343/1/209.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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, June.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    3. Gianmarco I.P. Ottaviano & Alessandro Turrini, 2002. "Distance and FDI when Contracts are Incomplete," Development Working Papers 165, Centro Studi Luca d'Agliano, University of Milano.
    4. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Offshoring in a Knowledge Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(1), pages 31-77.
    5. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    6. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    7. Marin, Dalia & Verdier, Thierry, 2007. "Competing in Organizations: Firm Heterogeneity and International Trade," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 207, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    8. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    9. 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.
    10. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
    11. 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.
    12. Marin, Dalia, 2006. "A New International Division of Labour in Europe," CEPR Discussion Papers 5447, C.E.P.R. Discussion Papers.
    13. Dalia Marin, 2006. "A New International Division of Labor in Europe: Outsourcing and Offshoring to Eastern Europe," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 612-622, 04-05.
    14. repec:ner:ucllon:http://discovery.ucl.ac.uk/17678/ is not listed on IDEAS
    15. repec:hrv:faseco:4784029 is not listed on IDEAS
    16. Diego Puga & Daniel Trefler, 2005. "Wake up and smell the ginseng: The rise of incremental innovation in low-wage countries," Working Papers tecipa-193, University of Toronto, Department of Economics.
    17. Soyer, Daniel, 2003. "Jewish Immigrant Entrepreneurship in New York and London, 1880–1914: Enterprise and Culture. By Andrew Godley. Basingstoke, England, and New York: Palgrave, 2001. Pp. xii, 187. $60.00," The Journal of Economic History, Cambridge University Press, vol. 63(1), pages 302-303, March.
    18. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    19. Marin, Dalia & Verdier, Thierry, 2006. "Corporate Hierarchies and the Size of Nations: Theory and Evidence," Discussion Papers in Economics 1346, University of Munich, Department of Economics.
    20. Dalia Marin & Thierry Verdier, 2003. "Globalization and the New Enterprise," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 337-344, 04/05.
    21. repec:hrv:faseco:4784031 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marin, Dalia, 2012. "The Theory of the Firm goes Global," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 370, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Giovanni Facchini & Thierry Verdier, 2009. "Symposium on organization, heterogeneity and trade," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(3), pages 433-436, March.
    3. Pol Antràs, 2014. "Grossman–Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(suppl_1), pages 118-175.
    4. Fernandes, Ana P. & Tang, Heiwai, 2012. "Determinants of vertical integration in export processing: Theory and evidence from China," Journal of Development Economics, Elsevier, vol. 99(2), pages 396-414.
    5. Antrà s, Pol & Yeaple, Stephen R., 2014. "Multinational Firms and the Structure of International Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 55-130, Elsevier.
    6. Omar Salgado, 2011. "Barriers to the accomplishment of a subsidiary's strategic role: how location and corporate networks influence subsidiary performance," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 15(2), pages 261-282.
    7. Carlo Altomonte & Armando Rungi, 2013. "Business Groups as Hierarchies of Firms: Determinants of Vertical Integration and Performance," Working Papers 2013.33, Fondazione Eni Enrico Mattei.
    8. Kohei Daido & Ken Tabata, 2012. "Skill-Biased Technological Change, Organizational Change, and Wage Inequality," Discussion Paper Series 84, School of Economics, Kwansei Gakuin University, revised Feb 2012.
    9. Zhou, Jun, 2012. "Cartel Duration and Endogenous Private Monitoring and Communication: An Instrumental Variables Approach," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 369, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marin, Dalia, 2012. "The Theory of the Firm goes Global," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 370, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Marin, Dalia & Verdier, Thierry, 2007. "Competing in Organizations: Firm Heterogeneity and International Trade," Discussion Papers in Economics 1933, University of Munich, Department of Economics.
    3. Marin, Dalia & Schymik, Jan & Tarasov, Alexander, 2018. "Trade in tasks and the organization of firms," European Economic Review, Elsevier, vol. 107(C), pages 99-132.
    4. Marin, Dalia & Verdier, Thierry, 2014. "Corporate hierarchies and international trade: Theory and evidence," Journal of International Economics, Elsevier, vol. 94(2), pages 295-310.
    5. Zhou, Jun, 2012. "Cartel Duration and Endogenous Private Monitoring and Communication: An Instrumental Variables Approach," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 369, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    6. Marin, Dalia & Verdier, Thierry, 2006. "Corporate Hierarchies and the Size of Nations: Theory and Evidence," Discussion Papers in Economics 1346, University of Munich, Department of Economics.
    7. Valeria Gattai, 2006. "From the Theory of the Firm to FDI and Internalisation: A Survey," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 65(2), pages 225-262, November.
    8. Pol Antràs & Esteban Rossi-Hansberg, 2009. "Organizations and Trade," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 43-64, May.
    9. Dalia Marin & Linda Rousová & Thierry Verdier, 2021. "Do Multinationals Transplant their Business Model?," The Economic Journal, Royal Economic Society, vol. 131(634), pages 899-945.
    10. Antrà s, Pol & Yeaple, Stephen R., 2014. "Multinational Firms and the Structure of International Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 55-130, Elsevier.
    11. Hansen, Thorsten, 2010. "Innovation and the International Firm Structure: Theory and Evidence from German Firm-Level Data," Discussion Papers in Economics 11464, University of Munich, Department of Economics.
    12. Fabrice Defever, 2011. "Incomplete Contracts and the Impact of Globalization on Consumer Welfare," CEP Discussion Papers dp1057, Centre for Economic Performance, LSE.
    13. Conconi, Paola & Legros, Patrick & Newman, Andrew F., 2012. "Trade liberalization and organizational change," Journal of International Economics, Elsevier, vol. 86(2), pages 197-208.
    14. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
    15. Liza Jabbour, 2012. "‘Slicing the Value Chain’ Internationally: Empirical Evidence on the Offshoring Strategy by French Firms," The World Economy, Wiley Blackwell, vol. 35(11), pages 1417-1447, November.
    16. Baumgarten, Daniel & Irlacher, Michael & Koch, Michael, 2020. "Offshoring and non-monotonic employment effects across industries in general equilibrium," European Economic Review, Elsevier, vol. 130(C).
    17. Joseph Pelzman, 2013. "“Womb for Rent”: International Service Trade Employing Assisted Reproduction Technologies (ARTs)," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 387-400, August.
    18. Charlie Karlsson & Gunther Maier & Michaela Trippl & Iulia Siedschlag & Gavin Murphy, 2010. "ICT and Regional Economic Dynamics: A Literature Review," JRC Research Reports JRC59920, Joint Research Centre.
    19. Verena Nowak & Christian Schwarz & Jens Suedekum, 2012. "On the Organizational Structure of Multinational Firms - Which Sourcing Mode for which Input?," CESifo Working Paper Series 3823, CESifo.
    20. Marin, Dalia & Verdier, Thierry, 2012. "Globalization and the empowerment of talent," Journal of International Economics, Elsevier, vol. 86(2), pages 209-223.

    More about this item

    Keywords

    foreign direct investment; power allocation in the firm; international trade and the organization of production;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:209. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tamilla Benkelberg (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.