A Theory of Inernational Strategic Alliance
As an alternative to exporting, a firm can enter a foreign market by forging a strategic alliance with its foreign counterparts. The alliance, in the form of a bilateral supply and distribution agreement, eliminates trasportation costs and duplications in product distribution networks. Furthermore, even though it does not involve equity sharing and firms continue to compete against each other, strategic alliance tends to lessen competition in the sens that it leads to smaller outputs and higher prices. The effects on welfare, measured by total surplus, is in general ambiguous. But strategic alliance improves welfare if demand function is linear. Other sufficient conditions for welfare improvement are also derived.
|Date of creation:||Jun 1999|
|Date of revision:||Nov 2003|
|Publication status:||Published: – revised version in Review of International Economics, Vol. 11, No. 5 (November 2003), pp. 758–769|
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