Analyzing Modes of Foreign Entry

Müller, Thomas (January 2001): Analyzing Modes of Foreign Entry. Greenfield Investment versus Acquisition. Discussion Papers in Economics 2001-1

Abstract

This paper studies the entry decision of a multinational enterprise into a foreign market. Two alternative entry modes for a foreign direct investment are considered: Greenfield investment versus acquisition. In contrast to existing approaches, the acquisition price and the profits under both entry modes are endogenously determined. Interestingly, we find that the optimal entry mode decision is a ected by the competition intensity in the market in a non-monotonic way. When markets are very much or very little competitive, greenfield investment is the optimal entry mode, while for intermediate values it is acquisition.

• Item Type: Paper (Discussion Paper)
• Keywords: Foreign direct investment ; multinational enterprise ; greenfield investment ; acquisition ; transition economies
• Subjects: Economics; Economics > Discussion Papers in Economics; Economics > Discussion Papers in Economics > Industrial Organization; Economics > Discussion Papers in Economics > International Trade
• Dewey Classification: 300 Social sciences; 300 Social sciences > 330 Wirtschaft
• Journal of Economic Literature classification: D43, F21, F23, L13, P31
• Language: English