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Horizontal FDI in a Dynamic Cournot - Oligopoly with Endogenous Entry

Laszlo Goerke ()

No 202003, IAAEU Discussion Papers from Institute of Labour Law and Industrial Relations in the European Union (IAAEU)

Abstract: Entry in a homogeneous Cournot-oligopoly is excessive if and only if there is business-stealing (Amir et al. 2014). The excessive entry prediction has been derived primarily for closed economies and using a welfarist benchmark. We extend this framework and allow for (1) horizontal FDI in a multi-period setting and (2) interest group-based government behaviour. Opening the market to greenfield investments from abroad tends to aggravate the entry distortion. Moreover, market opening may reduce welfare if a more pronounced entry distortion dominates the gain in consumer surplus. Finally, a government, which places sufficiently little weight on the interests of consumers, will object to market opening, even if welfare rises.

Keywords: Excessive Entry; Cournot-Oligopoly; Horizontal FDI; Political Support Function (search for similar items in EconPapers)
JEL-codes: D43 D72 F21 L13 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-com, nep-ind and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:iaa:dpaper:202003

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