Endogenous Market Structure and Foreign Market Entry
James R. Markusen
University of Colorado at Boulder - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
University of Tuebingen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); University of Adelaide - School of Economics
NBER Working Paper No. w15530
Models dealing with cross-border acquisitions versus greenfield investment usually assume that the entry of a foreign firm into a market has effects on the outputs of all domestic firms in that market, but exit or entry of local firms is not considered. The purpose of this paper is to re-examine the acquisition versus greenfield versus exporting question under fixed versus free entry assumptions for local firms. Our finding is that greenfield entry and exporting options are more attractive relative to acquisition when the local market structure adjusts to foreign entry through local entry or exit than when it is fixed. The entering foreign firm may do better or worse under free entry versus a fixed market structure depending on its optimal choice under the latter assumption.
Number of Pages in PDF File: 29
Date posted: November 24, 2009
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