Market Size, Product Differentiation and Bidding for New Varieties

Ian Wooton, Jie Ma

Research output: Working paperDiscussion paper

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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.
Original languageEnglish
Place of PublicationLondon
Number of pages25
VolumeDP11943
Publication statusPublished - 28 Mar 2017

Publication series

NameDiscussion Paper Series: International Trade and Regional Economics
PublisherCentre for Economic Policy Research
VolumeDP11943
ISSN (Print)0265-8003

Keywords

  • FDI
  • import substitution
  • market size
  • MNEs
  • product differentiation

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