Foreign Production, Strategic Choice and the Domestic Market Effect

Stephen Pavelin

No 2587, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper presents a simple model of the interaction between two firms, based in different countries, each of which faces the export v MNE choice concerning the serving of each other?s home market. The basic game structure is similar to that elsewhere in the literature (Horstmann & Markusen (1992), and Rowthorn (1992)). To this, I add a further choice: investment in a new technology that allows a corporate-wide reduction in variable costs (i.e. cost reducing R&D). In the presence of such corporate-wide investment, the firms? decisions concerning each other?s home markets are interdependent. Furthermore, strategic motives for foreign direct investment (FDI) relate not only to a firm?s foreign market profits, but also to those from their domestic market. This is because one firm?s export v MNE choice can influence both its rival?s choice and investment behaviour. One possibility is that a firm sets up a plant overseas in order to influence the behaviour of its rival, even though its profits from serving the foreign market would be higher by exporting.

Keywords: Foreign direct investment; Multinational enterprise; Strategic choice (search for similar items in EconPapers)
JEL-codes: F23 L13 (search for similar items in EconPapers)
Date: 2000-10
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP2587 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:2587

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP2587

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().