A Race Beyond the Bottom: The Nature of Bidding for a Firm

Furusawa, Taiji

Journal article written by 2009 Abe Fellow Taiji Furusawa based on his project "Quality of Financial Institutions and International Trade." Co-authors include Kazoomi Hori and Ian Wooton.

We examine how the bidding environment may affect the outcome of tax competition between two countries (or two regions) in attracting a firm’s foreign direct investment (FDI). We compare the equilibrium location choice and payoffs from an English auction, with both complete and incomplete information, relative to those in the traditional setting of a sealed-bid first-price auction. We find that an English auction leads to more aggressive bidding in “race beyond the bottom,” where the nations may bid beyond their own valuations of the FDI. We also discuss the roles of auction protocol and information asymmetry on the auction outcome.

Title
A Race Beyond the Bottom: The Nature of Bidding for a Firm
Author
Furusawa, Taiji
Published
International Tax and Public Finance, May 2014
On the web
Citation
Furusawa, Taiji, "A Race Beyond the Bottom: The Nature of Bidding for a Firm," in 22, ed. (International Tax and Public Finance, May 2014), http://link.springer.com/article/10.1007%2Fs10797-014-9326-z, 3, 452-475.