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Technical compatibility and the mode of foreign entry with network externalities

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  • Mikhail Klimenko
  • Kamal Saggi

Abstract

We examine the preferences of a foreign firm and a local government over two modes of foreign direct investment: de novo entry and acquisition of the domestic incumbent. Two crucial features of the model are network externalities and partial incompatibility between the domestic and the foreign technology. The relative welfare impact of the two entry modes depends on the degree of market competition and the strength of the network externality. The clash between the foreign firm's choice and the local government's ranking of the two entry modes can motivate limits on the degree of foreign ownership of the local firm.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 40 (2007)
Issue (Month): 1 (February)
Pages: 176-206

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Handle: RePEc:cje:issued:v:40:y:2007:i:1:p:176-206

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Cited by:
  1. Ho-Chyuan Chen & Chien-Chen Chen, 2011. "Compatibility Under Differentiated Duopoly with Network Externalities," Journal of Industry, Competition and Trade, Springer, vol. 11(1), pages 43-55, March.
  2. Onur Koska, 2009. "Foreign Direct Investment For Sale," Working Papers 0910, University of Otago, Department of Economics, revised Oct 2009.
  3. Norbäck, Pehr-Johan & Persson, Lars, 2005. "Investment Liberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive," Working Paper Series 644, Research Institute of Industrial Economics.
  4. Norbäck, Pehr-Johan & Persson, Lars & Vlachos, Jonas, 2006. "Cross-Border Acquisitions and Corporate Taxes: Efficiency and Tax Revenues," Working Paper Series 663, Research Institute of Industrial Economics.
  5. Pehr-Johan Norbäck & Lars Persson & Joacim Tag, 2008. "Entrepreneurial Innovations in Network Industries," Working Papers 08-02, NET Institute.
  6. Katariina Nilsson Hakkala & Olivier Bertrand & Norbäck Pehr-Johan & Persson Lars, 2008. "Should R&D Champions be Protected from Foreign Takeovers?," Discussion Papers 459, Government Institute for Economic Research Finland (VATT).
  7. Norbäck, Pehr-Johan & Persson, Lars, 2007. "Globalization and Profitability of Cross-border Mergers & Acquisitions," CEPR Discussion Papers 6102, C.E.P.R. Discussion Papers.
  8. Norbäck, Pehr-Johan & Persson, Lars, 2008. "Cross-Border Mergers & Acquisitions Policy in Service Markets," Working Paper Series 743, Research Institute of Industrial Economics.
  9. Ray Chaudhuri, A., 2014. "Acquisitions by Multinationals and Trade Liberalization," Discussion Paper 2014-006, Tilburg University, Center for Economic Research.
  10. Karabay, Bilgehan, 2010. "Foreign direct investment and host country policies: A rationale for using ownership restrictions," Journal of Development Economics, Elsevier, vol. 93(2), pages 218-225, November.

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