Competition for Firms in an Oligopolistic Industry: Do Firms or Countries Have to Pay?

Haufler, Andreas and Wooton, Ian (March 2007): Competition for Firms in an Oligopolistic Industry: Do Firms or Countries Have to Pay? Discussion Papers in Economics 2007-13

Abstract

We set up a model of generalised oligopoly where two countries of different size compete for an exogenous, but variable, number of identical firms. The model combines a desire by national governments to attract internationally mobile firms with the existence of location rents that arise even in a symmetric equilibrium where firms are dispersed. As economic integration proceeds, equilibrium taxes decline, switching from positive to negative levels, and then rise as trade costs fall even further. A range of trade costs is identified where economic integration raises the welfare of the small country, but lowers welfare in the large country.

• Item Type: Paper
• Keywords: tax and subsidy competition, oligopolistic markets
• Faculties: Economics; Economics > Munich Discussion Papers in Economics; Economics > Munich Discussion Papers in Economics > Public Finance; Economics > Chairs > Seminar for Economic Policy
• Subjects: 300 Social sciences > 300 Social sciences, sociology and anthropology; 300 Social sciences > 330 Economics
• JEL Classification: H25, H73, F15
• Language: English