Trade Costs, FDI incentives, and the Intensity of Price Competition

Gori, Giuseppe Francesco ; Lambertini, Luca ; Tampieri, Alessandro (2012) Trade Costs, FDI incentives, and the Intensity of Price Competition. Bologna: Dipartimento di Scienze economiche DSE, p. 12. DOI 10.6092/unibo/amsacta/4208. In: Quaderni - Working Paper DSE (810). ISSN 2282-6483.
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Abstract

Empirical evidence shows that an increase in trade liberalisation causes an increase in foreign direct investments (FDIs). Here we propose an explanation to this apparent puzzle by exploiting the intensity of competition in a Bertrand duopoly with convex costs where the two firms enter in a new market. We adopt Dastidar's (1995) approach, delivering a continuum of Bertrand-Nash equilibria ranging above marginal cost pricing, to show that softening competition may indeed more than offset the standard effect generated by trade costs, thereby leading to a positive relationship between trade liberalisation and FDIs.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Gori, Giuseppe Francesco
Lambertini, Luca
Tampieri, Alessandro
Keywords
trade liberalisation, foreign direct investment, Bertrand duopoly
Subjects
ISSN
2282-6483
DOI
Deposit date
30 Mar 2015 13:12
Last modified
31 Mar 2015 13:44
URI

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