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This paper extends Symeonidis (2003) 's duopoly model with product differentiation to discusses how FDI spillovers that decreases the quality difference between vertically differentiated products of the home and foreign firms affects the home firm's decision on plant location. This paper shows that whether the degree of spillover is exogenous or endogenous, it may have a positive relationship with a unit trade cost including the tariff rate. It also shows that in an oligopoly model with twodoi:10.2139/ssrn.1869440 fatcat:myjdj57jbffr3hnwfg4rpilg3u