Multinationals' Mode of Entry in the Presence of Upstream Spillovers

18 Pages Posted: 2 Mar 2010

See all articles by Ragnhild Balsvik

Ragnhild Balsvik

Norwegian School of Economics (NHH) - Department of Economics

Abstract

Multinationals' mode of foreign expansion may depend on their expectations of spillovers. I consider a monopolist with a vertical production structure where outsourcing of intermediates to a host country firm is one of three possible entry modes. Spillovers generate threat of entry of a new input producer. With incomplete outsourcing contracts that result in the two firms bargaining over how to share the potential surplus, upstream spillovers do not necessarily benefit the downstream multinational. If the multinational instead allows the supplier to set the price of intermediates (successive monopoly), it clearly benefits from upstream spillovers.

Suggested Citation

Balsvik, Ragnhild, Multinationals' Mode of Entry in the Presence of Upstream Spillovers. Economica, Vol. 77, Issue 306, pp. 334-351, April 2010. Available at SSRN: https://ssrn.com/abstract=1562147 or http://dx.doi.org/10.1111/j.1468-0335.2008.00771.x

Ragnhild Balsvik (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

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