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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

Abstract: 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)
Date: 2013-09
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