Kiel Working Papers, Kiel Institute for World Economics
No 1250:
Multinational Firms, Exclusivity, and the Degree of Backward Linkages
Ping Lin and Kamal Saggi
Abstract: This paper develops a two-tier oligopoly model in which
the entry of a multinational firm results in technology transfer to its
local suppliers and also impacts the degree of backward linkages in the
local industry. The model endogenizes the multinational’s choice between
anonymous market interaction with its suppliers and contractual
relationships with them under which the multinational transfer technology
to its suppliers who in turn agree to serve the multinational exclusively.
The multinational’s entry under an exclusive contract has a de-linking
e.ect that can reduce the degree of competition among suppliers thereby
leading to a decline in the level of backward linkages and local welfare.
With its emphasis on the supply-side e.ects of the multinational’s entry on
local industry, this paper complements existing studies of backward
linkages that focus more on demand-side e.ects.
Keywords: Multinational Firms, Backward Linkages, Vertical Technology Transfer, Exclusivity; (follow links to similar papers)
JEL-Codes: F23,; F12,; O19,; O14,; L13.; (follow links to similar papers)
32 pages, May 2005
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