Foreign Direct Investment For Sale
This study examines the choice of a multinational firm between two alternative entry modes, a greenfield investment and a joint venture, under incomplete information. The joint venture partner is selected by an auction, which distinguishes this study from other studies in the literature. A private values auction allows a multinational firm to increase its share of the joint venture profit so that a joint venture is always preferable to greenfield investment. The model also examines the nationally optimal entry mode and finds that greenfield investment is likely to reduce welfare. The anticipated welfare implications of a joint venture crucially depend on the expectation of the marginal cost of the joint venture. Relative to a greenfield investment, a joint venture is welfare-improving if the negative impact of a joint venture on a local rival's profit is small.
|Date of creation:||Oct 2009|
|Date of revision:||Oct 2009|
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"Exploring New Markets: Direct Investment, Contractual Relations and the Multinational Enterprise,"
NBER Working Papers
5029, National Bureau of Economic Research, Inc.
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"Privatization and foreign competition,"
Journal of International Economics,
Elsevier, vol. 62(2), pages 409-416, March.
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"A Theory of Auctions and Competitive Bidding,"
447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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CESifo Working Paper Series
1676, CESifo Group Munich.
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"Privatization Policy in an International Oligopoly,"
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"Dissipation of Knowledge and the Boundaries of the Multinational Enterprise,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(1), pages 1-26, April.
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- Mikhail Klimenko & Kamal Saggi, 2007. "Technical compatibility and the mode of foreign entry with network externalities," Canadian Journal of Economics, Canadian Economics Association, vol. 40(1), pages 176-206, February.
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Sonderforschungsbereich 504 Publications
97-06, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
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- Jean-François Hennart, 1991. "The Transaction Costs Theory of Joint Ventures: An Empirical Study of Japanese Subsidiaries in the United States," Management Science, INFORMS, vol. 37(4), pages 483-497, April.
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