The paper examines the causes of efficiency-seeking FDI and its effect on factor prices, employment, and output. We use a competitive equilibrium model of a single manufacturing sector and assume that its output is assembled from a continuum of intermedia

 

Market Integration and Market Concentration
in Horizontally Differentiated Industries‡

 

by

Carsten Eckel*

 

Centre for International Economics and Shipping (SIØS)

Norwegian School of Economics and Business Administration (NHH)

&

Department of Economics and Business Administration

University of Passau

 

 

 

 

April 2001

 

 

Abstract

This paper derives the impact of market integration on equilibrium firm size, R&D expenditures and market concentration in horizontally differentiated industries. We show that market concentration (measured by the number of firms) can rise as a consequence of market integration if firms engage in excessive R&D competition. This result implies that the welfare effects of market integration are not unambiguously positive. Additionally, we illustrate that if market integration leads to market concentration, firms are more likely to penetrate foreign markets via foreign direct investment.

 

 

Keywords:  Globalization, Market Structure, R&D, Multinational Enterprises

 

 

JEL:  F15, F23, L11, O32


‡        Funding from the European Commission through the Research Training Network "FDI and the Multinational Corporation" is gratefully acknowledged. The paper was presented at the Passau Workshop "International Economics" as well as in Department Seminars at the University of Bergen and at the Norwegian School of Economics and Business Administration in Bergen. Comments and suggestions from participants are also gratefully acknowledged. All errors remain my own.

*        NHH, Helleveien 30, N-5045 Bergen, Norway. Tel.: [+47] 55 95 95 24. Email: carsten.eckel@uni-passau.de