Exchange of threat between multinational firms as an infinitely repeated noncooperative game

This study addresses the issue of under what circumstances intra-industry direct foreign investment could lead to anticompetitive behavior. Specifically, conditions under which (a) duopolists each operating in two national markets might agree jointly to maximize profits in the two markets and (b) such an agreement could have the properties of a Nash equilibrium are explored. If firms maximize profits “myopically”—that is, in the current market period only without regard to effects of their actions on profits in future periods-then such an agreement cannot be a Nash equilibrium. But if firms attempt to maximize the net present value of profits both in the current market period and in future periods, then theorems from the theory of infinitely repeated noncooperative games can be invoked to show that arrangements requiring tacit collusion can be a Nash equilibrium.