Entering a foreign market: Exports, FDI or strategic alliance?

Karl Morasch

No 2018,5, Working Papers in Economics from Bundeswehr University Munich, Economic Research Group

Abstract: The decision over exports vs. foreign direct investment (FDI) is usually discussed in an extension of the so-called Melitz model where firms with heterogeneous costs compete in a monopolistically competitive industry. The present paper starts from a situation where a potential foreign entrant would be just indifferent between exports and FDI in such a setting. However, by assuming oligopolistic interaction, strategic considerations are also taken into account. It is shown how the strategic impact of lower marginal cost makes FDI more attractive in a Cournot setting while exports are preferable under price competition in a market with differentiated goods. Beyond that it is also explored how a strategic alliance with a local incumbent could be a superior alternative for market entry.

Keywords: Entry strategies; Trade; FDI; Alliances; Oligopoly (search for similar items in EconPapers)
JEL-codes: D43 L11 L41 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-bec, nep-com and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ubwwpe:20185

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