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Foreign Entry, Acquisition Target and Host Country Welfare
Author(s) -
Kabiraj Tarun,
Sinha Uday Bhanu
Publication year - 2015
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12084
Subject(s) - multinational corporation , bidding , welfare , economics , industrial organization , foreign direct investment , information asymmetry , microeconomics , process (computing) , business , market economy , computer science , finance , macroeconomics , operating system
We discuss entry strategy of a foreign multinational into a local market with initially two asymmetric local firms. We show that greenfield investment occurs when both local cost asymmetry and subsidiary set up cost are small, exporting occurs when both trade cost and technology gap are low, otherwise acquisition occurs. Under acquisition equilibrium the less efficient firm is acquired unless the cost of technology transfer is large enough. We focus on the process of selection of the target firm by constructing sequential offer game, bidding game and repeated offer game. However, the MNC's entry always reduces host country welfare.