Foreign direct investment in a two-tier oligopoly: Coordination, vertical integration, and welfare

Ping LIN; Kamal SAGGI

doi:10.1142/9789813233027_0009

Foreign direct investment in a two-tier oligopoly: Coordination, vertical integration, and welfare

Ping LIN^*, Kamal SAGGI

^*Corresponding author for this work

Research output: Book Chapters | Papers in Conference Proceedings › Book Chapter › Research › peer-review

Abstract

We study foreign direct investment (FDI) by two independent investors/entrants into a two-Tiered oligopolistic industry. An FDI subsidy at a single stage of production can be sufficient to resolve the coordination problem facing investors thereby inducing entry at both stages. However, due to linkage offsetting, FDI at both stages may yield lower domestic welfare than FDI at a single stage. Vertical integration not only solves the coordination problem, it also eliminates double marginalization. But since the integrated multinational does not sell the intermediate to local firms, its entry generates no vertical linkages and can yield lower welfare than FDI by independent firms.

Original language	English
Title of host publication	Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy
Editors	Kamal SAGGI
Publisher	World Scientific
Chapter	9
Pages	205-224
Number of pages	20
ISBN (Electronic)	9789813233027
DOIs	https://doi.org/10.1142/9789813233027_0009
Publication status	Published - Sept 2023
Externally published	Yes

Publication series

Name	World Scientific Studies in International Economics
Volume	82
ISSN (Print)	1793-3641

Bibliographical note

This chapter was originally appeared in International Economic Review 52, 1271–1290.
Publisher Copyright:
© 2011 The Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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LIN, P., & SAGGI, K. (2023). Foreign direct investment in a two-tier oligopoly: Coordination, vertical integration, and welfare. In K. SAGGI (Ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy (pp. 205-224). (World Scientific Studies in International Economics; Vol. 82). World Scientific. https://doi.org/10.1142/9789813233027_0009

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abstract = "We study foreign direct investment (FDI) by two independent investors/entrants into a two-Tiered oligopolistic industry. An FDI subsidy at a single stage of production can be sufficient to resolve the coordination problem facing investors thereby inducing entry at both stages. However, due to linkage offsetting, FDI at both stages may yield lower domestic welfare than FDI at a single stage. Vertical integration not only solves the coordination problem, it also eliminates double marginalization. But since the integrated multinational does not sell the intermediate to local firms, its entry generates no vertical linkages and can yield lower welfare than FDI by independent firms.",

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LIN, P & SAGGI, K 2023, Foreign direct investment in a two-tier oligopoly: Coordination, vertical integration, and welfare. in K SAGGI (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy. World Scientific Studies in International Economics, vol. 82, World Scientific, pp. 205-224. https://doi.org/10.1142/9789813233027_0009

Foreign direct investment in a two-tier oligopoly: Coordination, vertical integration, and welfare. / LIN, Ping; SAGGI, Kamal.
Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy. ed. / Kamal SAGGI. World Scientific, 2023. p. 205-224 (World Scientific Studies in International Economics; Vol. 82).

Research output: Book Chapters | Papers in Conference Proceedings › Book Chapter › Research › peer-review

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LIN P, SAGGI K. Foreign direct investment in a two-tier oligopoly: Coordination, vertical integration, and welfare. In SAGGI K, editor, Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy. World Scientific. 2023. p. 205-224. (World Scientific Studies in International Economics). doi: 10.1142/9789813233027_0009

Foreign direct investment in a two-tier oligopoly: Coordination, vertical integration, and welfare

Abstract

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Foreign direct investment in a two-tier oligopoly : coordination, vertical integration, and welfare

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