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Capacity Choice and Preemption of a Foreign Market

Author

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  • Vannini, Stefano

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

This paper studies the strategic role of foreign direct investment (FDI) in a framework with early-on capacity investments by a multinational enterprise (MNE) and relevant fixed costs. A three-stage game is considered : (i) MNE chooses internationalisation mode, and output to precommit by capacity investment ; (ii) local firm (HCF) decides about entry ; (iii) active firm(s) choose output. Cases exist in which MNE chooses FDI even if neither " exporting costs " nor firm-specific fixed costs are considered. Moreover, market preemption is not the only alternative justification for FDI. Credibility sometimes limits MNE’s strategic leadership ; this does not qualitatively affect the above results, but it is relevant.

Suggested Citation

  • Vannini, Stefano, 1993. "Capacity Choice and Preemption of a Foreign Market," LIDAM Discussion Papers IRES 1993018, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:1993018
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    More about this item

    Keywords

    multinational enterprises; capacity precommitment; credibility; market preemption;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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