Foreign direct investment (FDI) gives foreign firms access to local labor and inputs, thereby harmonizing costs between foreign and domestic firms relative to exports. This paper investigates the welfare effects of such cost harmonization in strategic environments, finding that when the number...

In the literature studying aggregate economies the aggregate elasticity of substitution (AES) between capital and labor is often treated as a constant or "deep" parameter. This view contrasts with the conjecture put forward by Arrow et al. (1961) that AES evolves over time and changes with the...

Consumers often boycott imported goods because they do not approve the way they are manufactured; e.g., using child labor or causing dolphin deaths. Without independent oversight firms must first resist the temptation to employ such modes of production and still convince consumers that they do not...

Host country governments often grant tax holidays to foreign firms located in their territories. Although such preferential tax treatment appears to disadvantage local competitors who try to enter the new markets, tax holidays can actually facilitate entry by local firms. This procompetitive...

We examine the role of cost uncertainty in a firm's choice between exporting and foreign investment in oligopolistic industry. We consider both foreign direct investment and an international joint venture, and allow country-specific and firm-specific cost uncertainty. Unlike exporting, either...

Suppose consumers buy complementary goods sequentially from several monopolists. If prices cannot be contracted on, there may be no sale in a one-shot game due to the holdup problem. Dynamic interaction of agents attenuates the problem. In equilibrium, the first and the last monopolist capture...

We compare the relative effect of a voluntary export restraint (VER) and a price undertaking on foreign firms' incentive to engage in FDI. We emphasize foreign rivalry as a determinant of FDI. We show, in a model that has two foreign firms competing with a home firm in the home country, that a...

This paper addresses two questions: 1) Does R&D cooperation facilitate price collusion; and 2) Why do R&D partnerships break up at high rates (20% in one estimate)? Innovation creates an interfirm cost asymmetry, which makes collusion difficult to sustain. The prospect of collusion ending with...

This paper examines the optimal entry policy towards oligopoly in a globalized world. In an open economy free entry is socially suboptimal, but corrective tax policy to curb entry proves insucient unless internationally harmonized. Thus, while conferring the gains from trade, globalization...

Cost harmonization is said to occur when foreign firms' marginal costs are brought closer or equalized to domestic firms' costs. It can occur for various reasons, ranging from foreign direct investment to falling transport cost and policy changes in the foreign country. In this paper we derive...