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Joint Ventures versus Fully Owned Subsidiaries: Multinational Strategies in Liberalizing Economies

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  • Mukherjee, Arijit
  • Sengupta, Sarbajit

Abstract

As ceilings on foreign shareholdings are withdrawn during liberalization, multinationals enter through fully owned subsidiaries that compete with their own joint ventures, unless local partners permit them to raise their stakes. In a framework of quantity competition, this paper demonstrates that an entry threat is more credible when joint venture investment is reversible, the units are independently managed and the local stake is high. Further, profitability of horizontal merger between the units encourages a share reallocation, while its absence favours a new subsidiary. Under irreversible investment, the threat is less credible and both share reallocations or new subsidiaries are less likely. Copyright 2001 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 9 (2001)
Issue (Month): 1 (February)
Pages: 163-80

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Handle: RePEc:bla:reviec:v:9:y:2001:i:1:p:163-80

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Cited by:
  1. Hamid Beladi & Lu Liu & Reza Oladi, . "A Holistic View of Trade, Pollution Permits and Abatement," Working Papers 0002, College of Business, University of Texas at San Antonio.
  2. Banerjee, Shantanu & Mukherjee, Arijit, 2010. "Joint venture instability in developing countries under entry," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 603-614, October.
  3. Onur Koska, 2009. "A Model of Competition Between Multinational Firms," Working Papers 0911, University of Otago, Department of Economics, revised Oct 2009.
  4. Jacques, Armel, 2006. "Des firmes multinationales : un survol de la littérature microéconomique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 82(4), pages 643-691, décembre.
  5. Mei-Fang Chung, 2011. "Shared Equity Policy in Joint Ventures for Host Countries," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(2), pages 189-202, September.
  6. Onur Koska, 2009. "Foreign Direct Investment For Sale," Working Papers 0910, University of Otago, Department of Economics, revised Oct 2009.
  7. Marjit, Sugata & Chowdhury, Prabal Roy, 2004. "Asymmetric capacity costs and joint venture buy-outs," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 425-438, July.
  8. Prabal Roy Chowdhury, 2003. "Joint venture instability and monitoring," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 04-09, Indian Statistical Institute, New Delhi, India.
  9. Kasuga, Hidefumi, 2003. "Capital market imperfections and forms of foreign operations," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 1043-1064, September.

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