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International Business Alliance under Asymmetric Information: Technology vis-a`-vis Information Advantage

Listed author(s):
  • Chifeng Dai


    (Department of Economics, Southern Illinois University Carbondale, Carbondale, IL 62901, USA)

  • Sajal Lahiri


    (Department of Economics, Southern Illinois University Carbondale, Carbondale, IL 62901, USA)

We study the relationship between a multinational corporation (MNC) and a domestic firm under demand uncertainty. The MNC possesses a superior production technology, but the domestic firm is better at predicting market demand. We examine the MNC’s preference for, and the ownership structure of, an international alliance (IA) and find, inter alia, that binding borrowing constraints have serious implications for the results. Interestingly, a firm’s preference for and profits in IA do not necessarily increase as its advantage in market information or production technology increases. We also consider a dynamic setting with technology spillover and show that whether technology spillover hinders or facilitates IA once again depends on the nature of the credit market.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 77 (2011)
Issue (Month): 3 (January)
Pages: 599-622

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Handle: RePEc:sej:ancoec:v:77:3:y:2011:p:599-622
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