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|
|Contact details of provider:|| Postal: P.O. Box 56, Dunedin|
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"Auctions with Downstream Interaction among Buyers,"
Sonderforschungsbereich 504 Publications
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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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"Exploring New Markets: Direct Investment, Contractual Relations and the Multinational Enterprise,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 1-19, February.
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- Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2001. "Mode of foreign entry, technology transfer, and foreign direct investment policy," Policy Research Working Paper Series 2737, The World Bank.
- Satya P. Das & Seiichi Katayama, 2003. "International Joint Venture And Host-Country Policies," The Japanese Economic Review, Japanese Economic Association, vol. 54(4), pages 381-394.
- Norbäck, Pehr-Johan & Persson, Lars, 2003.
"Privatization Policy in an International Oligopoly,"
Working Paper Series
608, Research Institute of Industrial Economics.
- Pehr-Johan Norbäck & Lars Persson, 2005. "Privatization Policy in an International Oligopoly," Economica, London School of Economics and Political Science, vol. 72(288), pages 635-653, November.
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"Privatization and Foreign Competition,"
CEPR Discussion Papers
2735, C.E.P.R. Discussion Papers.
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- Raff, Horst & Ryan, Michael & Stähler, Frank, 2005.
"Asset Ownership and Foreign-Market Entry,"
Economics Working Papers
2006,01, Christian-Albrechts-University of Kiel, Department of Economics.
- Paul Klemperer, 2004.
"Auctions: Theory and Practice,"
Online economics textbooks,
SUNY-Oswego, Department of Economics, number auction1.
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- Al-Saadon, Yousef & Das, Satya P., 1996. "Host-country policy, transfer pricing and ownership distribution in international joint ventures: A theoretical analysis," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 345-364, May.
- 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.
- Indrani Roy Chowdhury & Prabla Roy Chowdhury, 2002. "International Joint Ventures: A Welfare Analysis," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(1), pages 51-60.
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- Peter Nisbet & Wayne Thomas & Stuart Barrett, 2003. "UK direct investment in the United States: a mode of entry analysis," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 245-259.
- Erin Anderson & Hubert Gatignon, 1986. "Modes of Foreign Entry: A Transaction Cost Analysis and Propositions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 17(3), pages 1-26, September.
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