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To lead or to wait? An application to internationalization strategies under demand uncertainty
Author(s) -
Barac Maja,
MonerColonques Rafael
Publication year - 2019
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.3026
Subject(s) - duopoly , flexibility (engineering) , investment (military) , value (mathematics) , foreign direct investment , internationalization , lead (geology) , economics , microeconomics , industrial organization , realization (probability) , business , statistics , mathematics , management , geomorphology , machine learning , cournot competition , politics , political science , computer science , law , macroeconomics , geology
We examine the exports versus foreign direct investment (FDI) decision under demand uncertainty for an asymmetric cost duopoly. One of the firms can lead entry before demand realization or retain flexibility enjoying an informational advantage. When the time value of information is small and for sufficiently low investment costs, follow‐the‐leader behavior in FDI arises. Relatively high investment (fixed) costs result in follow‐the‐leader exporting behavior. When the time value of information becomes significant, the potential leader will opt for a wait‐and‐see strategy. For intermediate values of investment costs, the efficient firm invests, while the rival chooses to export.