Partial Collusion and Foreign Direct Investment
David Collie and
George Norman ()
No E2013/9, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section
We show that the static duopoly model in which firms choose between exporting and foreign direct investment is often a prisoners' dilemma game in which a switch from exporting to foreign direct investment reduces profits. By contrast, we show that when the game is repeated there is a range of parameters for which the firms can partially collude by choosing to export rather than invest. In this range, a reduction in export costs may undermine the partial collusion, causing a switch from export to investment.
Keywords: Foreign Direct Investment; Trade Liberalization; Partial Collusion (search for similar items in EconPapers)
JEL-codes: F12 F13 F23 (search for similar items in EconPapers)
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