Cross-Border Acquisitions and Greenfield Entry
We investigate the interaction between cross-border acquisitions and greenfield entry in a multi-firm setting. It is shown that the net profits of the acquirer may decrease when the acquisition gives the acquirer a strong position in the product market, relative to greenfield entrants. The reason is that the price of the assets increases more than the acquirer's profit, due to strategic interaction effects in the product market. The paper also provides an explanation why MNEs entering a new market by acquisitions may make a lower profit than MNEs entering greenfield. A greenfield entrant faces the risk of not being able to successfully locate production due to the lack of knowledge of characteristics of the local market. The bidding competition between the MNEs for being successfully located in the market then drives up the acquisition price to such a level that being a successful greenfield entrant is, ex post, more profitable.
|Date of creation:||10 Jan 2002|
|Contact details of provider:|| Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden|
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References listed on IDEAS
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- repec:hhs:iuiwop:511 is not listed on IDEAS
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2302, C.E.P.R. Discussion Papers.
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- James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
- Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1104-1123, November.
- Kofi Nti, 2000. "Potential competition and coordination in a market-entry game," Journal of Economics, Springer, vol. 71(2), pages 149-165, June.
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