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Playing away to win at home

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  • Leahy, Dermot
  • Pavelin, Stephen

Abstract

This paper presents a model of the interaction between two rival firms based in the same country. Each firm must decide how to serve a foreign market (export or foreign production) and how much to invest in a corporate-wide asset that reduces production costs and/or augments the willingness-to-pay for their product. In this scenario, the firms' foreign direct investment decisions are interdependent. Furthermore, strategic motives for FDI relate to a firm's domestic, as well as foreign, market profits. One possibility is that a firm sets up overseas production even though its foreign market profits would be higher by exporting.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 60 (2008)
Issue (Month): 5 ()
Pages: 455-468

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Handle: RePEc:eee:jebusi:v:60:y:2008:i:5:p:455-468

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Web page: http://www.elsevier.com/locate/jeconbus

Related research

Keywords: Foreign direct investment Multinational firm R& D Oligopoly;

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References

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  1. Kuemmerle, Walter, 1999. "Foreign direct investment in industrial research in the pharmaceutical and electronics industries--results from a survey of multinational firms," Research Policy, Elsevier, vol. 28(2-3), pages 179-193, March.
  2. Leahy, Dermot & Pavelin, Stephen, 2003. "Follow-my-leader FDI and tacit collusion," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 439-453, March.
  3. Head, K. & Mayer, T. & Ries, J., 2001. "Revisiting Oligopolistic Reaction: Are FDI Decisions Strategic Complements," Papiers d'Economie Mathématique et Applications 2001.49, Université Panthéon-Sorbonne (Paris 1).
  4. Archibugi, Daniele & Michie, Jonathan, 1995. "The Globalisation of Technology: A New Taxonomy," Cambridge Journal of Economics, Oxford University Press, vol. 19(1), pages 121-40, February.
  5. Teece, David J., 1986. "Transactions cost economics and the multinational enterprise An Assessment," Journal of Economic Behavior & Organization, Elsevier, vol. 7(1), pages 21-45, March.
  6. Laszlo Tihanyi & David A Griffith & Craig J Russell, 2005. "The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis," Journal of International Business Studies, Palgrave Macmillan, vol. 36(3), pages 270-283, May.
  7. Gatignon, Hubert & Anderson, Erin, 1988. "The Multinational Corporation's Degree of Control over Foreign Subsidiaries: An Empirical Test of a Transaction Cost Explanation," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(2), pages 305-36, Fall.
  8. Zander, Ivo, 1997. "Technological diversification in the multinational corporation--historical evolution and future prospects," Research Policy, Elsevier, vol. 26(2), pages 209-227, May.
  9. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February.
  10. Cantwell, John, 1995. "The Globalisation of Technology: What Remains of the Product Cycle Model?," Cambridge Journal of Economics, Oxford University Press, vol. 19(1), pages 155-74, February.
  11. Smith, Alasdair, 1987. "Strategic investment, multinational corporations and trade policy," European Economic Review, Elsevier, vol. 31(1-2), pages 89-96.
  12. Maria Petit & Francesca Sanna-Randaccio, 1998. "Technological innovation and multinational expansion: A two-way link?," Journal of Economics, Springer, vol. 68(1), pages 1-26, February.
  13. Hongxin Zhao & Yadong Luo & Taewon Suh, 2004. "Transaction cost determinants and ownership-based entry mode choice: a meta-analytical review," Journal of International Business Studies, Palgrave Macmillan, vol. 35(6), pages 524-544, November.
  14. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan, vol. 19(1), pages 1-31, March.
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Cited by:
  1. Juan Bárcena-Ruiz & María Garzón, 2014. "Relocation and investment in R&D by firms," Portuguese Economic Journal, Springer, vol. 13(1), pages 25-38, April.
  2. Stephen Pavelin & Lynda A. Porter, 2011. "Race-to-the-Bottom or -Top at Home or Abroad: Health and Safety Standards and the Multinational Firm," The Economic and Social Review, Economic and Social Studies, vol. 42(3), pages 289–311.

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