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

37 Pages Posted: 11 May 2007

See all articles by Andreas Haufler

Andreas Haufler

University of Munich - Seminar for Economic Policy; CESifo (Center for Economic Studies and Ifo Institute)

Ian Wooton

University of Strathclyde - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 2007

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.

Keywords: tax and subsidy competition, oligopolistic markets

JEL Classification: H25, H73, F15, F23

Suggested Citation

Haufler, Andreas and Wooton, Ian, Competition for Firms in an Oligopolistic Industry: Do Firms or Countries Have to Pay? (April 2007). CESifo Working Paper Series No. 1976, Available at SSRN: https://ssrn.com/abstract=985280 or http://dx.doi.org/10.2139/ssrn.985280

Andreas Haufler (Contact Author)

University of Munich - Seminar for Economic Policy ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

HOME PAGE: http://www.ecpol.vwl.uni-muenchen.de

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Ian Wooton

University of Strathclyde - Department of Economics ( email )

Sir William Duncan Building
130 Rottenrow
Glasgow G4 0GE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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