Does market familiarity bless multinational in strategic competition?
This paper considers a competition between two multinationals (U, J) who compete in a third market (K). The multinationals have identical cost structures, but differ in that J comes from a country that is "taste-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 enters, J can earn higher profits. However, we show: (i) K may benefit more from the entry of the market-familiar firm (U), and (ii) in a strategic competition between the two firms, the market-familiarity may be a strategic disadvantage.
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- Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-414, May.
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