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Market size, product differentiation and bidding for new varities

Jie Ma () and Ian Wooton ()
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Jie Ma: University of Business and Economics

No 1903, Working Papers from University of Strathclyde Business School, Department of Economics

Abstract: We analyse a firm's investment 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. We find that the firm's location decision is efficient. Fiscal competition does not affect the location of production but redistributes rents between the firm and the taxpayers of the host country. The implications of endogenous product differentiation and the new good being produced by a competing firm are also considered. As far as we know the tax competition literature has not previously addressed the issue of product differentiation.

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)
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-int
Date: 2019-03
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