CORE Discussion Paper No. 2005/65
34 Pages Posted: 30 Jun 2006
Date Written: October 2005
We investigate the spatial distribution and organization of an imperfectly competitive industry when firms may choose to operate more than a single production unit. Focusing on a short-run setting with a fixed mass of firms, we fully characterize the spatial equilibria analytically. Comparing the equilibrium and the first-best, we show that both organizational and spatial inefficiencies may arise. In particular, when fixed costs are low enough the market outcome may well lead to overinvestment and, therefore, to too many multinationals operating from a social point of view. Furthermore, once multinationals are taken into account, the market outcome may well lead too little agglomeration.
Keywords: international trade, imperfect competition, horizontal foreign direct investment, economic geography
JEL Classification: F12, F23, R12
Suggested Citation: Suggested Citation
Behrens, Kristian and Picard, Pierre M., Welfare, Home Market Effects, and Horizontal Foreign Direct Investment (October 2005). Available at SSRN: https://ssrn.com/abstract=894762 or http://dx.doi.org/10.2139/ssrn.894762