Cross-Border Acquisitions and Greenfield Entry
AbstractWe investigate the interaction between cross-border acquisitions and greenfield entry in a multi-firm setting. It is shown that the net profits of the acquirer may decrease when the acquisition gives the acquirer a strong position in the product market, relative to greenfield entrants. The reason is that the price of the assets increases more than the acquirer's profit, due to strategic interaction effects in the product market. The paper also provides an explanation why MNEs entering a new market by acquisitions may make a lower profit than MNEs entering greenfield. A greenfield entrant faces the risk of not being able to successfully locate production due to the lack of knowledge of characteristics of the local market. The bidding competition between the MNEs for being successfully located in the market then drives up the acquisition price to such a level that being a successful greenfield entrant is, ex post, more profitable.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 570.
Length: 31 pages
Date of creation: 10 Jan 2002
Date of revision:
Contact details of provider:
Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
Web page: http://www.ifn.se/
More information through EDIRC
Investment Liberalization; FDI; Mergers & Acquisitions ;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Horn, Henrik & Persson, Lars, 1999.
"The Equilibrium Ownership of an International Oligopoly,"
CEPR Discussion Papers
2302, C.E.P.R. Discussion Papers.
- Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April.
- Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," Working Paper Series 515, Research Institute of Industrial Economics.
- Vives, Xavier, 1988. "Sequential entry, industry structure and welfare," European Economic Review, Elsevier, vol. 32(8), pages 1671-1687, October.
- Morton I. Kamien & Israel Zang, 1987.
"The Limits of Monopolization Through Acquisition,"
754, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1104-23, November.
- James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
- Norbäck, Pehr-Johan & Persson, Lars, 2002. "Investment Liberalization - Who Benefits from Cross Border Mergers," CEPR Discussion Papers 3166, C.E.P.R. Discussion Papers.
- Fumagalli, Eileen & Vasconcelos, Helder, 2006. "Cross-Border Merger Waves," CEPR Discussion Papers 5601, C.E.P.R. Discussion Papers.
- Onur Koska, 2009. "Foreign Direct Investment For Sale," Working Papers 0910, University of Otago, Department of Economics, revised Oct 2009.
- Norbäck, Pehr-Johan & Persson, Lars, 2001.
"Privatization and Foreign Competition,"
CEPR Discussion Papers
2735, C.E.P.R. Discussion Papers.
- Norbäck, Pehr-Johan & Persson, Lars, 2003. "Cross-Border Acquisitions and Greenfield Entry: Profitability and Stock Market Value," CEPR Discussion Papers 3998, C.E.P.R. Discussion Papers.
- Fumagalli, Eileen & Vasconcelos, Helder, 2009. "Sequential cross-border mergers," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 175-187, March.
- Yasuhiko Nakamura, 2011. "Strategic managerial delegation and cross-border mergers," Journal of Economics, Springer, vol. 104(1), pages 49-89, September.
- Norbäck, Pehr-Johan & Persson, Lars, 2007. "Globalization and Profitability of Cross-border Mergers & Acquisitions," CEPR Discussion Papers 6102, C.E.P.R. Discussion Papers.
- Müller, Thomas, 2003. "The Multinational Enterprise," Munich Dissertations in Economics 799, University of Munich, Department of Economics.
- Norbäck, Pehr-Johan & Persson, Lars, 2001. "Investment Liberalization - Who Benefits from Cross-Border Mergers & Acquisitions?," Working Paper Series 569, Research Institute of Industrial Economics.
- Ray Chaudhuri, A., 2010. "Monopolization Through Acquisitions in Multimarket Oligopolies (Replaced by CentER DP 2011-112)," Discussion Paper 2010-96, Tilburg University, Center for Economic Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elisabeth Gustafsson).
If references are entirely missing, you can add them using this form.