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| Author: | Behrens, K. Picard, P.M. |
| Title: | Bidding for horizontal multinationals |
| Journal: | Journal of the European Economic Association
2008 : DEC, VOL. 6:6, p. 1244-1278 |
| Index terms: | multinational companies government bidding models |
| Language: | eng |
| Abstract: | In this paper, a model is presented in which governments bid for firms by taxing/subsidizing setup costs. Firms choose both the number and the location of the plants, and governments' subsidy (hereafter as: sub/s.) choices affect the equilibrium industry structure. It is shown that the endogenous presence of horizontal multinationals (herein as: m-nts.) dimishes the race to the bottom, producing some results running counter to traditional findings. 1. in the presence of m-nts., increasing sub/s. decrease firms' profits by impeding price competition due to more firms becoming m-nts. 2. instead of being always subsidized, firms may actually be taxed in equilibrium. 3. sub/s. may become strategically independent policy instruments, instead of being strategic complements. |
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