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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Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number
99-08.
Find related papers by JEL classification: F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies L49 - Industrial Organization - - Antitrust Issues and Policies - - - Other
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