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Trade or multinational production? Consumer preferences and multiproduct firms

Thomas, Catherine (2017) Trade or multinational production? Consumer preferences and multiproduct firms. In: Alcácer, Juan and Kogut, Bruce and Thomas, Catherine and Yin Yeung, Bernard, (eds.) Geography, Location, and Strategy. Emerald Publishing Limited, pp. 49-85. ISBN 9781787142770

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Identification Number: 10.1108/S0742-332220170000036003

Abstract

This paper shows that consumer preference heterogeneity affects whether multinational firms serve local markets via imports or local production. Firms are least likely to choose local production over imports for product varieties that have relatively inelastic demand because transport costs have a smaller impact on the firm’s local profits for these products. The results suggest that there is complementarity between centralized production, with local market access via imports, and strategies that maintain low price elasticities at the brand level, such as advertising and within-brand product proliferation. A partial equilibrium study of the laundry detergent industry in Western Europe illustrates how firms and consumers interact at different levels of transport costs and reveals the product varieties that are most and least likely to be manufactured locally when transport costs are high.

Item Type: Book Section
Official URL: http://www.emeraldinsight.com/series/astm
Additional Information: © 2017 Emerald Publishing Limited
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HF Commerce
Sets: Departments > Management
Date Deposited: 31 May 2017 11:54
Last Modified: 31 May 2017 11:54
URI: http://eprints.lse.ac.uk/id/eprint/79363

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