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Power in the Multinational Corporation in Industry Equilibrium

Author

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  • Marin, Dalia
  • Verdier, Thierry
Abstract
Recent theories of the multinational corporation introduce the property rights model of the firm and examine whether to integrate our outsource firm activities locally or to a foreign country. This paper focus instead on the internal organization of the multinational corporation by examining the power allocation between headquarters and subsidiaries. We provide a framework to analyse the interaction between the decision to serve the local market by exporting or FDI, market acces and the optimal mode of organization of the multinational corporation. We find that subsidiary managers are given most autonomy in their decision how to run the firm at intermediate levels of local competition. We then provide comparative statics for changes in fixed FDI entry costs and trade costs, information technology, the number of local competitors, and in the size of the local market.

Suggested Citation

  • Marin, Dalia & Verdier, Thierry, 2007. "Power in the Multinational Corporation in Industry Equilibrium," Discussion Papers in Economics 1922, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenec:1922
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    File URL: https://epub.ub.uni-muenchen.de/1922/1/powerfdi2.pdf
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    References listed on IDEAS

    as
    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    2. Gianmarco I.P. Ottaviano & Alessandro Turrini, 2002. "Distance and FDI when Contracts are Incomplete," Development Working Papers 165, Centro Studi Luca d'Agliano, University of Milano.
    3. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    4. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    5. Marin, Dalia & Verdier, Thierry, 2007. "Competing in Organizations: Firm Heterogeneity and International Trade," Discussion Papers in Economics 1933, University of Munich, Department of Economics.
    6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    7. Marin, Dalia, 2006. "A New International Division of Labour in Europe," CEPR Discussion Papers 5447, C.E.P.R. Discussion Papers.
    8. Dalia Marin & Thierry Verdier, 2008. "Power Inside The Firm and The Market: A General Equilibrium Approach," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 752-788, June.
    9. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Offshoring in a Knowledge Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(1), pages 31-77.
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    12. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    13. Dalia Marin & Thierry Verdier, 2003. "Globalization and the New Enterprise," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 337-344, 04/05.
    14. Diego Puga & Daniel Trefler, 2005. "Wake up and smell the ginseng: The rise of incremental innovation in low-wage countries," Working Papers tecipa-193, University of Toronto, Department of Economics.
    15. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
    16. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
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    19. Soyer, Daniel, 2003. "Jewish Immigrant Entrepreneurship in New York and London, 1880–1914: Enterprise and Culture. By Andrew Godley. Basingstoke, England, and New York: Palgrave, 2001. Pp. xii, 187. $60.00," The Journal of Economic History, Cambridge University Press, vol. 63(1), pages 302-303, March.
    20. Marin, Dalia & Verdier, Thierry, 2006. "Corporate Hierarchies and the Size of Nations: Theory and Evidence," Discussion Papers in Economics 1346, University of Munich, Department of Economics.
    21. repec:hrv:faseco:4784031 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Giovanni Facchini & Thierry Verdier, 2009. "Symposium on organization, heterogeneity and trade," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(3), pages 433-436, March.
    2. Marin, Dalia, 2012. "The Theory of the Firm goes Global," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 370, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    3. Omar Salgado, 2011. "Barriers to the accomplishment of a subsidiary's strategic role: how location and corporate networks influence subsidiary performance," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 15(2), pages 261-282.
    4. Pol Antràs, 2014. "Grossman–Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(suppl_1), pages 118-175.
    5. Fernandes, Ana P. & Tang, Heiwai, 2012. "Determinants of vertical integration in export processing: Theory and evidence from China," Journal of Development Economics, Elsevier, vol. 99(2), pages 396-414.
    6. Carlo Altomonte & Armando Rungi, 2013. "Business Groups as Hierarchies of Firms: Determinants of Vertical Integration and Performance," Working Papers 2013.33, Fondazione Eni Enrico Mattei.
    7. Antrà s, Pol & Yeaple, Stephen R., 2014. "Multinational Firms and the Structure of International Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 55-130, Elsevier.
    8. Kohei Daido & Ken Tabata, 2012. "Skill-Biased Technological Change, Organizational Change, and Wage Inequality," Discussion Paper Series 84, School of Economics, Kwansei Gakuin University, revised Feb 2012.
    9. Zhou, Jun, 2012. "Cartel Duration and Endogenous Private Monitoring and Communication: An Instrumental Variables Approach," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 369, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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    More about this item

    Keywords

    foreign direct investment; power allocation in the firm; international trade and the organization of production;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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