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Haufler, Andreas; Wooton, Ian (2010): Competition for firms in an oligopolistic industry: The impact of economic integration. In: Journal of International Economics, Vol. 80, No. 2: pp. 239-248

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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 initially decline, but then rise again 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.

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