Asymmetric Demand Information and Foreign Direct Investment
We examine the FDI versus exports decision of firms competing in an oligopolistic (quantitysetting) market under demand uncertainty and asymmetric information. Compared to a firm that chooses to export, a firm that chooses to set up a plant in the host market has superior information about local market demand. In addition to the well-known tension between the fixed set-up costs of investment, the additional variable costs of exports and oligopoly sizes, the incentive to invest abroad is explained by the strategic learning effect. FDI may be observed even if trade costs are zero. The analysis is robust to price competition and to the possibility that a foreign firm can engage in both FDI and…
Testing price-fixing agreements in a multimarket context: The European case of vitamin C
In this paper, we suggest a method to test price-fixing agreements. Prices fixed to multiple shipments are decomposed into a set of destination market effects and time effects in order to allow us to perform an analysis of residuals. We examine the pricing behavior of vitamin C in the European destination markets of German exports. We explore two different periods: January 1991–August 1995 and September 1995–September 2001. Empirical results on the first period, which are consistent with our knowledge obtained from firms’ confessions about illegal agreements, contrast notably with those obtained on the more recent period.