Competition for firms in an oligopolistic industry: The impact of economic integration

We set up a model of generalised oligopoly where two countries of different size compete for an exogenous, but variable. number of identical firms. The model combines a desire by national governments to attract internationally mobile firms with the existence of location rents that arise even in a symmetric equilibrium where firms are dispersed As economic integration proceeds. equilibrium taxes initially decline, but then rise again as trade costs fall even further A range of trade costs is identified where economic integration raises the welfare of the small country, but lowers welfare in the large country (C) 2009 Elsevier B V All rights reserved