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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Chifeng Dai & Sajal Lahiri, 2011. "International Business Alliance under Asymmetric Information: Technology vis-a`-vis Information Advantage," Southern Economic Journal, Southern Economic Association, vol. 77(3), pages 599-622, January.
  • Handle: RePEc:sej:ancoec:v:77:3:y:2011:p:599-622
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    File URL: http://dx.doi.org/10.4284/sej.2011.77.3.599
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    Cited by:

    1. Jain, N., 2016. "Financing and Mode of Entry in Foreign Markets," Working Papers 15/16, Department of Economics, City University London.

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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