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Foreign Market Entry Strategies under Asymmetric Information

Author

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  • Alberto Nastasi
  • Pierfrancesco Reverberi

Abstract

A home firm signals her private cost information by expanding in a foreign firm’s country. Credible signaling to deter counter‐entry may occur through a direct investment (but not through exports), and may even entail entering an unprofitable market. While this produces social benefits, uninformative signaling may be welfare‐reducing. Hence, we argue that moderate to high location costs may be socially desirable. We also show that there are not simple monotonic relationships between technology/demand conditions and firms’ entry modes. Thus, the signaling interpretation of international expansion makes it possible to explain some controversial empirical findings on a theoretical ground.

Suggested Citation

  • Alberto Nastasi & Pierfrancesco Reverberi, 2007. "Foreign Market Entry Strategies under Asymmetric Information," Review of International Economics, Wiley Blackwell, vol. 15(4), pages 758-781, September.
    • Handle: RePEc:bla:reviec:v:15:y:2007:i:4:p:758-781
    DOI: 10.1111/j.1467-9396.2007.00681.x
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    Cited by:

    1. Onur A. Koska & Ngo Van Long & Frank Stähler, 2018. "Foreign direct investment as a signal," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 60-83, February.
    2. Eden, Lorraine & Indro, Daniel C. & Miller, Stewart R. & Richards, Malika, 2021. "Valuation uncertainty, home and host market uncertainty, and cross-border seasoned equity offerings," International Business Review, Elsevier, vol. 30(3).

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