DP3871 Employment Protection and Globalization in Dynamic Oligopoly
|Author(s):||Gerda Dewit, Dermot Leahy, Catia Montagna|
|Publication Date:||April 2003|
|Keyword(s):||employment protection, flexibility, foreign direct investment, location, oligopoly, uncertainty|
|JEL(s):||D80, F23, L13|
|Programme Areas:||International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=3871|
We construct a model in which oligopolistic firms decide where to locate. Firms choose to locate either in a country where employment protection implies costly output adjustments or in one without adjustment costs. Using a two-period three-stage game with uncertainty it is demonstrated that location is influenced by both flexibility and strategic concerns. We show that the strategic effects under Cournot work towards domestic anchorage in the country with adjustment costs while those under Bertrand do not. Strategic agglomeration can occur in the inflexible country under Cournot and even under Bertrand provided uncertainty and foreign direct investment costs are low.