Document Type

Journal article

Source Publication

International Economic Review

Publication Date

11-1-2011

Volume

52

Issue

4

First Page

1271

Last Page

1290

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

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