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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- Daniel M. Bernhofen, 2001. "Product differentiation, competition, and international trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(4), pages 1010-1023, November.
- Luis R Gómez-Mejia & Leslie E Palich, 1997. "Cultural Diversity and the Performance of Multinational Firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(2), pages 309-335, June.
- Laszlo Tihanyi & David A Griffith & Craig J Russell, 2005. "The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(3), pages 270-283, May.
- Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-414, May.
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