A Race Beyond the Bottom: The Nature of Bidding for a Firm

28 Pages Posted: 14 May 2010

See all articles by Taiji Furusawa

Taiji Furusawa

University of Tokyo

Kazumi Hori

Ritsumeikan University - College of Economics

Ian Wooton

University of Strathclyde - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 1, 2010

Abstract

We examine how the bidding environment may affect the outcome of tax competition between two countries (or two regions) in attracting a firm’s foreign direct investment (FDI). We compare the equilibrium location choice and payoffs from an English auction, with both complete and incomplete information, relative to those in the traditional setting of a sealed-bid first-price auction. We find that an English auction leads to more aggressive bidding in “race beyond the bottom,” where the nations may bid beyond their own valuations of the FDI. We also discuss the roles of auction protocol and information asymmetry on the auction outcome.

Keywords: Tax Competition, Foreign Direct Investment, International Ownership, English Auction, Information Asymmetry

JEL Classification: F12, F23, H25, H73

Suggested Citation

Furusawa, Taiji and Hori, Kazumi and Wooton, Ian, A Race Beyond the Bottom: The Nature of Bidding for a Firm (May 1, 2010). CESifo Working Paper Series No. 3049. Available at SSRN: https://ssrn.com/abstract=1605118

Kazumi Hori

Ritsumeikan University - College of Economics ( email )

1-1-1 Noji-Higashi
Kusatsu, Shiga 525-8577, Siga 525-8577
Japan

HOME PAGE: http://www.ritsumei.ac.jp/~kazhori/

Ian Wooton

University of Strathclyde - Department of Economics ( email )

Sir William Duncan Building
130 Rottenrow
Glasgow G4 0GE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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