Market Size, Product Differentiation and Bidding for New Varieties

Ian Wooton () and Jie Ma

No 11943, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyse a firm's investment decision in a regional economy composed of two countries. The firm already manufactures a horizontally differentiated good in the region and we determine the firm's equilibrium location choice for the new good and the welfare consequences of fiscal competition between the two countries. The outcome is the result of interactions among market-size, product-differentiation, and import-substitution effects. The first two effects represent the fundamental trade-off facing the firm. The third effect provides each country with an economic incentive to compete for the FDI. Past papers have addressed the market-size and import-substitution effects but, as far as we know, the product-differentiation effect is new to the literature.

Keywords: Fdi; Import substitution; Market size; Mnes; Product differentiation (search for similar items in EconPapers)
JEL-codes: F21 F23 L22 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-bec, nep-ind and nep-int
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Journal Article: Market size, product differentiation and bidding for new varieties (2020)
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