Bidding for Horizontal Multinationals

Kristian Behrens () and Pierre Picard

Journal of the European Economic Association, 2008, vol. 6, issue 6, 1244-1278

Abstract: We present a model in which governments bid for firms by taxing/subsidizing setup costs. Firms choose both the number and the location of the plants they operate, and the equilibrium industry structure is affected by governments' subsidy choices. We show that the endogenous presence of horizontal multinationals attenuates the race to the bottom and yields some results that run counter to traditional findings in the literature. First, in the presence of multinationals, increasing subsidies decrease firms' profits by exacerbating price competition due to more firms going multinational. Second, instead of being always subsidized, firms may actually be taxed in equilibrium. Last, subsidies may become strategically independent policy instruments, instead of being strategic complements. (JEL: F12, F23, H27, H73, R12) (c) 2008 by the European Economic Association.

JEL-codes: F12 F23 H27 H73 R12 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (19)

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Working Paper: Bidding for horizontal multinationals (2009)
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