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The impact of multinational entry on domestic market structure and investment

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  • Haller, Stefanie A.

Abstract

We model the impact of different modes of multinational entry on the choices of domestic firms. Focusing on the competitive effects of foreign entry for the host country we demonstrate that greenfield investment will increase competition only if it is not countered by anti-competitive reactions on the part of the domestic firms. Together with cross-border mergers and acquisitions the model, thus, provides two alternative explanations for the increase in concentration ratios in industries with mostly horizontal foreign direct investment. Moreover, foreign presence is shown to raise total investment in the local industry at the cost of crowding out domestic investment.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 18 (2009)
Issue (Month): 1 (January)
Pages: 52-62

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Handle: RePEc:eee:reveco:v:18:y:2009:i:1:p:52-62

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Web page: http://www.elsevier.com/locate/inca/620165

Related research

Keywords: Mode of foreign entry Host-country effects Competition Market structure Cost-reducing investment;

References

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  1. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
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  4. Koen De Backer & Leo Sleuwaegen, 2003. "Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship?," Review of Industrial Organization, Springer, vol. 22(1), pages 67-84, February.
  5. Nocke, Volker & Yeaple, Stephen, 2007. "Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity," Journal of International Economics, Elsevier, vol. 72(2), pages 336-365, July.
  6. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  7. Theo Eicher & Jong Woo Kang, 2004. "Trade, Foreign Direct Investment or Acquisition: Optimal Entry Modes for Multinationals," CESifo Working Paper Series 1174, CESifo Group Munich.
  8. Boone, J., 2000. "Competitive pressure: The effects on investments in product and process innovation," Open Access publications from Tilburg University urn:nbn:nl:ui:12-84400, Tilburg University.
  9. J Peter Neary, 2004. "Cross-Border Mergers as Instruments of Comparative Advantage," Working Papers 200404, School Of Economics, University College Dublin.
  10. Magnus Blomstrom & Jian-Ye Wang, 1992. "Foreign Investment and Technology Transfer: A Simple Model," NBER Working Papers 2958, National Bureau of Economic Research, Inc.
  11. Peter J Buckley & Mark C Casson, 1998. "Analyzing Foreign Market Entry Strategies: Extending the Internalization Approach," Journal of International Business Studies, Palgrave Macmillan, vol. 29(3), pages 539-561, September.
  12. Glass, Amy Jocelyn & Saggi, Kamal, 2002. " Multinational Firms and Technology Transfer," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 495-513, December.
  13. 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.
  14. Driffield, Nigel, 2001. "The Impact of Domestic Productivity of Inward Investment in the UK," Manchester School, University of Manchester, vol. 69(1), pages 103-19, January.
  15. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, vol. 48(6), pages 1211-1226, December.
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Citations

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Cited by:
  1. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2010. "Sequential spatial competition in vertically related industries with different product varieties," Economics Letters, Elsevier, vol. 106(2), pages 112-114, February.
  2. Onur Koska, 2009. "A Model of Competition Between Multinational Firms," Working Papers 0911, University of Otago, Department of Economics, revised Oct 2009.
  3. James Markusen & Frank Stähler, 2011. "Endogenous market structure and foreign market entry," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 147(2), pages 195-215, June.
  4. Rosa Forte & Paula Sarmento, 2012. "Foreign Presence and Market Concentration: The Case of Portuguese Manufacturing Industries," FEP Working Papers 444, Universidade do Porto, Faculdade de Economia do Porto.
  5. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2010. "Cross-border Merger, Vertical Structure, and Spatial Competition," MPRA Paper 24474, University Library of Munich, Germany.
  6. Gelves, J. Alejandro & Heywood, John S., 2013. "Privatizing by merger: The case of an inefficient public leader," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 69-79.
  7. van Bergeijk, P.A.G., 2009. "What could anti-trust in the OECD do for development?," ISS Working Papers - General Series 18720, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
  8. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2014. "A public firm in a model of spatial duopoly with price discrimination," Economics Letters, Elsevier, vol. 123(1), pages 79-81.
  9. Qu, Zhe & Huang, Can & Zhang, Mingqian & Zhao, Yanyun, 2013. "R&D offshoring, technology learning and R&D efforts of host country firms in emerging economies," Research Policy, Elsevier, vol. 42(2), pages 502-516.
  10. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2013. "Cross-border mergers in vertically related industries," European Economic Review, Elsevier, vol. 59(C), pages 97-108.

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