DP16579 Dynamics of Large Multinationals
We develop a model of large multinational enterprises, each one producing a continuum of
products. These outsized firms compete as oligopolists in a domestic and foreign market, facing
competitive pressure from single-product firms that engage in monopolistic competition. The
multinational enterprises invest in R&D in order to expand the span of their products and in
foreign direct investment (FDI) in order to expand the range of products manufactured by their
foreign affiliates. We study the dynamic evolution of these markets and characterize transition
dynamics and steady states. In addition to the evolution of product spans, we characterize the
evolution of prices, markups, market shares, and exports relative to subsidiary sales. Furthermore,
we study comparative dynamics that result from changes in trade costs, R&D costs, the
cost of FDI and productivity changes of the multinational firms.
