A Model of Competition Between Multinational Firms

This study focuses on the theory of how multinational firms choose their entry modes between alternative options (i.e., trade, green field investment, or acquisition). In a comprehensive model of strategic decision-making with more than one multinational firm, it delineates how a multinational firm's entry mode influences a rival multinational firm's market entry behavior and how exogenous factors (e.g., market size, firms' production cost, per-unit trade cost and fixed investment cost) affect the optimal entry modes. The main finding of the study is that competition among multinational firms substantially affects their optimal entry modes such that competition implies different entry modes compared to no competition.PublishedBarros, P.B. 1998. Endogenous mergers and size asymmetry of merger participants. Economics Letters 60, 113-119. Bjorvatn, K. 2004. Economic integration and the profitability of cross-border mergers and acquisitions. European Economic Review 48, 1211-1226. Borek, T., Bühler, S., Schmutzler, A. 2004. Mergers under asymmetric Information-is there a lemons problem?. University of Zurich, Socioeconomic Institute Working Paper 0213. Zurich: University of Zurich. Brainard, S.L. 1993. An empirical assessment of the factor proportions explanation of multinational sales. NBER Working Paper. No. 4583. Cambridge: National Bureau of Economic Research. Caves, R.E. 1996. Multinational enterprise and economic analysis. Cambridge: Cambridge University Press. Dunning, J.H. 1992. Multinational enterprises and the global economy. Wokingham: Addison-Wesley. Dunning, J.H., Lundan, S.M. 2008. Multinational enterprises and the global economy. Cheltenham: Edward Elgar. Eicher, T., Kang, J.W. 2005. Trade, foreign direct investment or acquisition: optimal entry modes for multinationals. Journal of Development Economics 77, 207-228. Goodman, J.B., Pauly, L.W. 1993. The obsolescence of capital controls? Economic management in an age of global markets. World Politics 46, 50-82. Görg, H. 2000. Analyzing foreign market entry: the choice between green field investment and acquisitions. Journal of Economic Studies 27, 165-181. Haller, S.A. 2009. The impact of multinational entry on domestic market structure and investment. International Review of Economics and Finance 18, 52-62. Hennart, J.F.M.A., Park, Y.R. 1993. Green field vs. acquisition: the strategy of Japanese investors in the United States. Management Science 39, 1054-1070. Hirst, P. 1997. The global economy-myths and realities. International Affairs 73, 409-425. Hirst, P., Thompson, G., Bromley, S. 2009. Globalization in question. Cambridge: Polity Press. Horn, H., Persson, L. 2001. The equilibrium ownership of an international oligopoly. Journal of International Economics 53, 307-333. Javorcik, B.S., Saggi, K. 2003. Technological asymmetry among foreign investors and mode of entry. World Bank Policy Research Working Paper Series. No. 3196. Washington: The World Bank. Markusen, J. R. 1995. The boundaries of multinational enterprises and the theory of international trade. Journal of Economic Perspectives 9, 169-189. Mukherjee, A., Sengupta, S. 2001. Joint ventures versus fully owned subsidiaries: multinational strategies in liberalizing economies. Review of International Economics 9, 163-180. Müller, T. 2007. Analyzing modes of foreign entry: green field investment versus acquisition. Review of International Economics 15, 93-111. Navaretti, B.G., Venables, A.J. 2004. Multinational firms in the world economy. Princeton: Princeton University Press. Neary, J.P. 2009. Trade costs and foreign direct investment. International Review of Economics and Finance 18, 207-218. Norbäck, P.J., Persson, L. 2004. Privatization and foreign competition. Journal of International Economics 62, 409-416. Norbäck, P.J., Persson, L. 2008. Globalization and profitability of cross-border mergers and acquisitions. Economic Theory 35, 241-266. Salant, S., Switzer, S., Reynolds, R.J. 1983. Losses from horizontal merger: the effects of an exogenous change in industry structure on Cournot-Nash equilibrium. Quarterly Journal of Economics 98, 185-199. UNCTAD 2006. World Investment Report 2006: FDI from developing and transition economies-implications for development. New York and Geneva: United Nations. UNCTAD 2007. World Investment Report 2007: Transnational corporations, extractive industries and development. New York and Geneva: United Nations. UNCTAD 2008. World Investment Report 2008: Transnational corporations and the infrastructure challenge. New York and Geneva: United Nations