Author

Nanqin LIU

Date of Award

8-21-2013

Degree Type

Thesis

Degree Name

Master of Philosophy (MPHIL)

Department

Computing and Decision Sciences

First Advisor

Dr. LENG Mingming

Second Advisor

Dr. LIANG Liping

Abstract

The internationalization of production requires each multinational firm to determine the local content rate for his product that is made and sold in a foreign country. In this thesis, we investigate the local content rate and pricing decisions for a multinational firm who competes with a local firm in a market without and with a local content requirement (LCR). We develop and solve a two-stage decision problem in which the multinational firm determines his optimal local content rate and the two firms then make their pricing decisions. Our analytical results show that the multinational firm sets a lower local content rate, when the competition between the product of the multinational firm and that of the local firm intensifies, consumers' valuation is more strongly affected by the quality of the product of the multinational firm, and the reduction in consumers' marginal utility is smaller. We also show that an LCR may induce the multinational firm to increase local content rate and transfer benefits from the multinational firm to the local firm. However, a very high LCR threshold will cause the multinational firm to adopt a low local content rate, resulting in a low demand and profit for both the multinational firm and the local firm.

Recommended Citation

Liu, N. (2013). Pricing and local-content decisions of a multinational firm in a duopoly market (Master's thesis, Lingnan University, Hong Kong). Retrieved from http://dx.doi.org/10.14793/cds_etd.8