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Foreign Market Entry Strategies under Asymmetric Information *
Author(s) -
Nastasi Alberto,
Reverberi Pierfrancesco
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.1467-9396.2007.00681.x
Subject(s) - economics , private information retrieval , information asymmetry , welfare , microeconomics , interpretation (philosophy) , investment (military) , foreign direct investment , industrial organization , market economy , macroeconomics , statistics , mathematics , politics , computer science , law , political science , programming language
A home firm signals her private cost information by expanding in a foreign firm’s country. Credible signaling to deter counter‐entry may occur through a direct investment (but not through exports), and may even entail entering an unprofitable market. While this produces social benefits, uninformative signaling may be welfare‐reducing. Hence, we argue that moderate to high location costs may be socially desirable. We also show that there are not simple monotonic relationships between technology/demand conditions and firms’ entry modes. Thus, the signaling interpretation of international expansion makes it possible to explain some controversial empirical findings on a theoretical ground.