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Competition of Multinationals from Different Cultural Backgrounds: Does Familiarity Breed Contempt?

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  • Kwon, Chul-Woo
  • Lapan, Harvey E.

Abstract

This paper considers competition between two multinationals (U, J) who compete in a third market (K). The multinationals have similar cost structures, but differ in that J comes from a country that is "culturally similar" to K, and hence produces products that match more closely the preferences of K residents.  This similarity gives J an advantage in K’s market and, if only one firm may enter, J can earn higher profits.  However, we show: (i)K may benefit more from the entry of the dissimilar firm (U), and (ii)in a strategic competition between the two firms, the cultural similarity may be a strategic disadvantage.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p3914-2005-05-24.pdf
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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12361.

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Date of creation: 24 May 2005
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Handle: RePEc:isu:genres:12361

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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