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Playing away to win at home

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  • Leahy, Dermot
  • Pavelin, Stephen

Abstract

This paper presents a model of the interaction between two rival firms based in the same country. Each firm must decide how to serve a foreign market (export or foreign production) and how much to invest in a corporate-wide asset that reduces production costs and/or augments the willingness-to-pay for their product. In this scenario, the firms' foreign direct investment decisions are interdependent. Furthermore, strategic motives for FDI relate to a firm's domestic, as well as foreign, market profits. One possibility is that a firm sets up overseas production even though its foreign market profits would be higher by exporting.

Suggested Citation

  • Leahy, Dermot & Pavelin, Stephen, 2008. "Playing away to win at home," Journal of Economics and Business, Elsevier, vol. 60(5), pages 455-468.
  • Handle: RePEc:eee:jebusi:v:60:y:2008:i:5:p:455-468
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    1. Head, K. & Mayer, T. & Ries, J., 2000. "Revisiting Oligopolistic Reaction : Are FDI Decisions Strategic Complements?," Papiers d'Economie Mathématique et Applications 2000.49, Université Panthéon-Sorbonne (Paris 1).
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    6. David J. TEECE, 2008. "TRANSACTIONS COST ECONOMICS AND THE MULTINATIONAL ENTERPRISE: An Assessment," World Scientific Book Chapters,in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 20, pages 427-451 World Scientific Publishing Co. Pte. Ltd..
    7. 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.
    8. Smith, Alasdair, 1987. "Strategic investment, multinational corporations and trade policy," European Economic Review, Elsevier, vol. 31(1-2), pages 89-96.
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    13. Leahy, Dermot & Pavelin, Stephen, 2003. "Follow-my-leader FDI and tacit collusion," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 439-453, March.
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    15. Petit, Maria-Luisa & Sanna-Randaccio, Francesca, 2000. "Endogenous R&D and foreign direct investment in international oligopolies," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 339-367, February.
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    Cited by:

    1. Juan Bárcena-Ruiz & María Garzón, 2014. "Relocation and investment in R&D by firms," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 13(1), pages 25-38, April.
    2. Stephen Pavelin & Lynda A. Porter, 2011. "Race-to-the-Bottom or -Top at Home or Abroad: Health and Safety Standards and the Multinational Firm," The Economic and Social Review, Economic and Social Studies, vol. 42(3), pages 289-311.
    3. Dong, Quan & Bárcena-Ruiz, Juan Carlos, 2015. "Does investment in capacity encourage FDI?," Economic Modelling, Elsevier, vol. 51(C), pages 58-64.

    More about this item

    Keywords

    Foreign direct investment Multinational firm R& D Oligopoly;

    JEL classification:

    • 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
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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