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A consumer-surplus standard in foreign acquisitions, foreign direct investment, and welfare

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  • Onur A. Koska

    (Middle East Technical University (METU))

Abstract

This study scrutinizes the ramifications of the strategic use of a consumer welfare argument in regulating foreign acquisitions and foreign market entry (i) on a multinational’s choice between acquiring a local firm’s existing assets (via negotiations or auctions) and investing in new assets via greenfield entry, or trade, under both complete and incomplete information; and (ii) on welfare. Any foreign acquisition fulfilling a minimum output requirement imposed by the host country as part of the foreign market entry regulation is in the best interest of the multinational even when there is complete trade liberalization. A local firm appropriates a bigger share from acquisition gains in an auction, and prefers generating information asymmetries. Welfare improves with a larger scope for ex-post firm heterogeneity when the foreign market entry regulation includes a minimum output requirement for foreign acquisitions based on consumer welfare.

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  • Onur A. Koska, 2019. "A consumer-surplus standard in foreign acquisitions, foreign direct investment, and welfare," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(1), pages 149-179, February.
    • Handle: RePEc:spr:weltar:v:155:y:2019:i:1:d:10.1007_s10290-018-0324-6
    DOI: 10.1007/s10290-018-0324-6
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    Cited by:

    1. Koska, Onur A., 2019. "Gains from multinational competition for cross-border firm acquisition," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-19.

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    More about this item

    Keywords

    Trade; Greenfield entry; Foreign acquisitions; Consumer welfare; Foreign market entry regulation;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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