Pricing and local-content decisions of a multinational firm in a duopoly market

  • Nanqin LIU

Student thesis: MPhil Thesis (Lingnan)


The internationalization of production requires each multinational firm to determine the local content rate for his product that is made and sold in a foreign country. In this thesis, we investigate the local content rate and pricing decisions for a multinational firm who competes with a local firm in a market without and with a local content requirement (LCR). We develop and solve a two-stage decision problem in which the multinational firm determines his optimal local content rate and the two firms then make their pricing decisions. Our analytical results show that the multinational firm sets a lower local content rate, when the competition between the product of the multinational firm and that of the local firm intensifies, consumers' valuation is more strongly affected by the quality of the product of the multinational firm, and the reduction in consumers' marginal utility is smaller. We also show that an LCR may induce the multinational firm to increase local content rate and transfer benefits from the multinational firm to the local firm. However, a very high LCR threshold will cause the multinational firm to adopt a low local content rate, resulting in a low demand and profit for both the multinational firm and the local firm.
Date of Award2013
Original languageEnglish
Awarding Institution
  • Department of Computing and Decision Sciences
SupervisorMingming LENG (Supervisor) & Li Ping LIANG (Supervisor)

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