International Enterprises and Endogenous Market Structure

Claude Mathieu

Annals of Economics and Statistics, 1997, issue 47, 171-195

Abstract: We propose a model of product differentiation where the strategies of two firms determine not only the market and industry structures but also the direct investment and trade patterns. In this framework, we show that the markets can have a monopoly or duopoly structure according to the trade barriers and the sunk cost levels. When the multinationalization of both firms is achieved, it is always in a prisoner's dilemma game which is Pareto damaging for the firms' profit. Moreover, the leader firm reling on the sunk costs, the direct investments can permit not only a "market pre-emption" abroad but also an "industry" pre-emption" as they lead to prevent the entry of the follower firm on both markets.

Date: 1997
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