The Impact of Multinational Entry on Domestic Market Structure and R&D

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The Impact of Multinational Entry on Domestic Market Structure and R&D

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Stefanie A. Haller

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Stefanie Alexandra Haller

Abstract

We model the impact of different modes of multinational entry on the choices of domestic firms. Focusing on the competitive effects of foreign presence in 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. Considering also 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 R&D.

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2005/16.

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Date of creation: 2005
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Handle: RePEc:eui:euiwps:eco2005/16

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-02-12 (All new papers)
NEP-ETS-2006-02-12 (Econometric Time Series)

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