Document Type
Journal article
Source Publication
International Economic Review
Publication Date
11-1-2011
Volume
52
Issue
4
First Page
1271
Last Page
1290
Publisher
Wiley-Blackwell Publishing, Inc.
Abstract
We study foreign direct investment (FDI) by two independent investors/entrants into a two-tiered oligopolistic industry. An FDI subsidy at a single stage of production can be sufficient to resolve the coordination problem facing investors thereby inducing entry at both stages. However, due to linkage offsetting, FDI at both stages may yield lower domestic welfare than FDI at a single stage. Vertical integration not only solves the coordination problem, it also eliminates double marginalization. But since the integrated multinational does not sell the intermediate to local firms, its entry generates no vertical linkages and can yield lower welfare than FDI by independent firms.
DOI
10.1111/j.1468-2354.2011.00667.x
Print ISSN
00206598
E-ISSN
14682354
Publisher Statement
Copyright © (2011) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
Access to external full text or publisher's version may require subscription.
Full-text Version
Accepted Author Manuscript
Language
English
Recommended Citation
Lin, P., & Saggi, K. (2011). Foreign direct investment in a two-tier oligopoly: Coordination, vertical integration, and welfare. International Economic Review, 52(4), 1271-1290. doi: 10.1111/j.1468-2354.2011.00667.x