Technical Compatibility and the Mode of Foreign Entry With Network Externalities

31 Pages Posted: 26 Jan 2007

See all articles by Mikhail M. Klimenko

Mikhail M. Klimenko

Georgia Institute of Technology - School of Economics

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics

Abstract

We examine the preferences of a foreign firm and a local government over two modes of foreign direct investment: de novo entry and acquisition of the domestic incumbent. Two crucial features of the model are network externalities and partial incompatibility between the domestic and the foreign technology. The relative welfare impact of the two entry modes depends on the degree of market competition and the strength of the network externality. The clash between the foreign firm's choice and the local government's ranking of the two entry modes can motivate limits on the degree of foreign ownership of the local firm.

Suggested Citation

Klimenko, Mikhail M. and Saggi, Kamal, Technical Compatibility and the Mode of Foreign Entry With Network Externalities. Canadian Journal of Economics, Vol. 40, No. 1, pp. 176-206, February 2007, Available at SSRN: https://ssrn.com/abstract=959485 or http://dx.doi.org/10.1111/j.1365-2966.2007.00404.x

Mikhail M. Klimenko (Contact Author)

Georgia Institute of Technology - School of Economics ( email )

781 Marietta Street, NW
Atlanta, GA 30332
United States

HOME PAGE: http://www.econ.gatech.edu/docs/klimenko_vita0904.pdf

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-3274 (Phone)
214-768-1821 (Fax)

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