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Analyzing Modes of Foreign Entry: Greenfield Investment versus Acquisition
Author(s) -
Müller Thomas
Publication year - 2007
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2006.00634.x
Subject(s) - greenfield project , multinational corporation , competition (biology) , investment (military) , foreign direct investment , industrial organization , economics , microeconomics , mode (computer interface) , business , computer science , finance , macroeconomics , ecology , biology , politics , political science , law , operating system
Abstract This paper studies the entry decision of a multinational enterprise into a foreign market. Two alternative entry modes for a foreign direct investment are considered: greenfield investment versus acquisition. In contrast to existing approaches, the acquisition price and the profits under both entry modes are endogenously determined. Interestingly, we find that the optimal entry mode decision is affected by the competition intensity in the market in a nonmonotonic way. When markets are very much or very little competitive, greenfield investment is the optimal entry mode, while for intermediate values it is acquisition.