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Competition of Multinationals from Different Cultural Backgrounds: Does Familiarity Breed Contempt?

Author

Listed:
  • Kwon, Chul-Woo
  • Lapan, Harvey E.

Abstract

This paper considers competition between two multinationals (U, J) who compete in a third market (K). The multinationals have similar cost structures, but differ in that J comes from a country that is "culturally similar" to K, and hence produces products that match more closely the preferences of K residents. This similarity gives J an advantage in K’s market and, if only one firm may enter, J can earn higher profits. However, we show: (i)K may benefit more from the entry of the dissimilar firm (U), and (ii)in a strategic competition between the two firms, the cultural similarity may be a strategic disadvantage.

Suggested Citation

  • Kwon, Chul-Woo & Lapan, Harvey E., 2005. "Competition of Multinationals from Different Cultural Backgrounds: Does Familiarity Breed Contempt?," Staff General Research Papers Archive 12361, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:12361
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    File URL: http://www2.econ.iastate.edu/papers/p3914-2005-05-24.pdf
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    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General

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