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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- Philippe Jehiel & Benny Moldovanu, 2000.
"Auctions with Downstream Interaction Among Buyers,"
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"Privatization and Foreign Competition,"
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2004-W09, Economics Group, Nuffield College, University of Oxford.
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"A Theory of Auctions and Competitive Bidding,"
447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Pehr-Johan Norbäck & Lars Persson, 2005.
"Privatization Policy in an International Oligopoly,"
London School of Economics and Political Science, vol. 72(288), pages 635-653, November.
- Norbäck, Pehr-Johan & Persson, Lars, 2003. "Privatization Policy in an International Oligopoly," Working Paper Series 608, Research Institute of Industrial Economics.
- 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.
- Horstmann, Ignatius J & Markusen, James R, 1996.
"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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- 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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- 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.
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