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Analyzing Modes of Foreign Entry

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Author Info
Müller, Thomas

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Abstract

This paper studies the entry decision of a multinational enterprise into a foreign market. Two alternative entry modes for a foreign direct investment are considered: Greenfield investment versus acquisition. In contrast to existing approaches, the acquisition price and the profits under both entry modes are endogenously determined. Interestingly, we find that the optimal entry mode decision is a ected by the competition intensity in the market in a non-monotonic way. When markets are very much or very little competitive, greenfield investment is the optimal entry mode, while for intermediate values it is acquisition.

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File URL: http://epub.ub.uni-muenchen.de/13/1/0101_mueller.pdf
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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 13.

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Date of creation: Jan 2001
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Handle: RePEc:lmu:muenec:13

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Related research
Keywords: Foreign direct investment ; multinational enterprise ; greenfield investment ; acquisition ; transition economies;

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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
P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

References listed on IDEAS
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  1. Bruce Kogut & Harbir Singh, 1988. "The Effect of National Culture on the Choice of Entry Mode," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 19(3), pages 411-432, September. [Downloadable!] (restricted)
  2. Erin Anderson & Hubert Gatignon, 1986. "Modes of Foreign Entry: A Transaction Cost Analysis and Propositions," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 17(3), pages 1-26, September. [Downloadable!] (restricted)
  3. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring. [Downloadable!] (restricted)
  4. Andersson, Thomas & Svensson, Roger, 1994. " Entry Modes for Direct Investment Determined by the Composition of Firm-Specific Skills," Scandinavian Journal of Economics, Blackwell Publishing, vol. 96(4), pages 551-60.
  5. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April. [Downloadable!] (restricted)
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  6. Horn, Henrik & Persson, Lars, 2001. "Endogenous mergers in concentrated markets," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1213-1244, September. [Downloadable!] (restricted)
    Other versions:
  7. Peter J Buckley & Mark C Casson, 1998. "Analyzing Foreign Market Entry Strategies: Extending the Internalization Approach," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 29(3), pages 539-561, September. [Downloadable!] (restricted)
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