Foreign Entry, Acquisition Target and Host Country Welfare

24 Pages Posted: 28 Sep 2015

See all articles by Tarun Kabiraj

Tarun Kabiraj

Indian Statistical Institute, New Delhi - Economic Research Unit

Uday Bhanu Sinha

Indian Statistical Institute

Date Written: December 2015

Abstract

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.

Suggested Citation

Kabiraj, Tarun and Sinha, Uday Bhanu, Foreign Entry, Acquisition Target and Host Country Welfare (December 2015). The Manchester School, Vol. 83, Issue 6, pp. 725-748, 2015, Available at SSRN: https://ssrn.com/abstract=2665846 or http://dx.doi.org/10.1111/manc.12084

Tarun Kabiraj (Contact Author)

Indian Statistical Institute, New Delhi - Economic Research Unit ( email )

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HOME PAGE: http://www.isical.ac.in/~eru/tarun.html

Uday Bhanu Sinha

Indian Statistical Institute ( email )

203 B. T. Road
Kolkata, West Bengal 700108
India

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