Technology transfers and optimal entry strategies for the multinational firm

This paper develops an oligopolistic model in which firms can choose between three different modes of entry to address three broad questions: (1) What is the role of trade costs and start-up costs in the entry decision if cross-border acquisitions involve no technology transfers? (2) How does the level of harmonization of technologies between the multinational and the acquired firm change the optimal mode of entry? (3) What is the role of market concentration on the entry decision given positive levels of technology transfers to the acquired firm? We show that in the case of cross-border acquisitions higher tariffs may act as an entry barrier by raising the reservation price of the acquisition target. Our analysis also underlines the importance of the usefulness of transferred technology. Acquisitions become more likely as the degree of harmonization between the multinational's and acquired firm's assets increases. Finally, we demonstrate that market concentration plays a non-trivial role in the entry decision when the technology transfers are not complete or as useful on the multinational.foreign direct investment, entry modes, technology transfers, tariff-jumping,