Trade liberalization in a multinational-dominated industry

Abstract

Existing theoretical models in the trade-industrial-organization literature assume almost exclusively that firms are ‘national enterprises’, so that there is no international coordination by multinational firms. We develop a model in which multinationals compete among themselves but coordinate production, pricing, and sales decisions across multiple plants and markets. Free entry and exit is assumed, and cases in which the multinationals can and cannot segment markets are considered. The model is simulated using data from the North American auto industry. Results are compared with a counter-factual model, calibrated to the same data, which assumes national ownership of firms.