Competition for multiproduct firms

Hong Feng, Jie Ma and Yang Yue

Review of International Economics, 2023, vol. 31, issue 3, 904-930

Abstract: We use a first‐price menu auction approach to studying a fiscal competition between two countries of different sizes to attract a foreign monopolist intending to supply two vertically differentiated products in a regional economy composed of the same two countries. Market size and cannibalization exclusively determine the firm's location choice. Though import substitution provides each country with an incentive to bid for FDI, this does not affect the firm's location decisions. As a result, fiscal competition for FDI only involves transfers between the host country/countries of FDI and the firm. We also report novel welfare effects of FDI competition.

Date: 2023
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