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A Theory of Inernational Strategic Alliance


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As an alternative to exporting, a firm can enter a foreign market by forging a strategic alliance with its foreign counterparts. The alliance, in the form of a bilateral supply and distribution agreement, eliminates trasportation costs and duplications in product distribution networks. Furthermore, even though it does not involve equity sharing and firms continue to compete against each other, strategic alliance tends to lessen competition in the sens that it leads to smaller outputs and higher prices. The effects on welfare, measured by total surplus, is in general ambiguous. But strategic alliance improves welfare if demand function is linear. Other sufficient conditions for welfare improvement are also derived.

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Bibliographic Info

Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 99-08.

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Length: 22 pages
Date of creation: Jun 1999
Date of revision: Nov 2003
Publication status: Published: – revised version in Review of International Economics, Vol. 11, No. 5 (November 2003), pp. 758–769
Handle: RePEc:car:carecp:99-08

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Keywords: strategic alliance; supply and distribution agreement; reciprocal dumping;

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Cited by:
  1. Colin Butler, 2006. "UK-Asian strategic alliances in the defence manufacturing industry," Asia Europe Journal, Springer, Springer, vol. 4(1), pages 43-52, April.
  2. TAKECHI Kazutaka, 2008. "International Strategic Alliances for Local Market Entry: Direct Launches versus Marketing Alliances in Pharmaceuticals," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 08022, Research Institute of Economy, Trade and Industry (RIETI).
  3. Pinuccia Calia & Maria Ferrante, 2013. "How do firms combine different internationalisation modes? A multivariate probit approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 149(4), pages 663-696, December.
  4. Ojah, Kalu, 2007. "Costs, valuation, and long-term operating effects of global strategic alliances," Review of Financial Economics, Elsevier, Elsevier, vol. 16(1), pages 69-90.
  5. Brooke, Jesse & Oliver, Barry, 2005. "The source of abnormal returns from strategic alliance announcements," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 13(2), pages 145-161, March.
  6. Qiu, Larry D., 2010. "Cross-border mergers and strategic alliances," European Economic Review, Elsevier, Elsevier, vol. 54(6), pages 818-831, August.


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