working

This paper studies spatial interdependencies in multi-plant production. I develop a model in which each firm decides locations of plant set and variable markups where its plants sell. Such location decision is guided by two competing forces: amplification of a firm’s competitive advantage through plant expansion and diminishing marginal benefits due to cannibalization.

Recent decades have witnessed the growing importance of trade in intermediate goods and pursuit of free trade agreements (FTAs). They distort firms’ sourcing decisions internationally through preferential tariffs and rules of origin (RoOs), a set of criteria that define the origin of a product to qualify for preferential access.