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Trade or Multinational Production? Consumer Preferences and Multiproduct Firms

Geography, Location, and Strategy

ISBN: 978-1-78714-277-0, eISBN: 978-1-78714-276-3

Publication date: 19 April 2017

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.

Keywords

Citation

Thomas, C. (2017), "Trade or Multinational Production? Consumer Preferences and Multiproduct Firms", Geography, Location, and Strategy (Advances in Strategic Management, Vol. 36), Emerald Publishing Limited, Bingley, pp. 49-85. https://doi.org/10.1108/S0742-332220170000036003

Publisher

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Emerald Publishing Limited

Copyright © 2017 Emerald Publishing Limited