Duopolistic Competition and Optimal Switching Time from Export to FDI in Uncertainty

Mankan M. Koné, Carl Gaigne and Lota Tamini

CIRANO Working Papers from CIRANO

Abstract: This paper aimed to extend previous real option models to features of multinational firms' activities such as market competition and trade barriers. Few researchers have studied multinationals' optimal switching time from export to FDI using real options, and those who have done so have ignored trade policies and strategic interactions between firms. Yet, the presence of local competitors and trade costs influences the option value of waiting. We finnd that FDI in host countries with uncertain demand, strong competition and few barriers to trade will likely to be delayed with respect to immediate investment. In terms of policy implications, we nd that the trade and competition policies of host countries have lower deterrent e ffects on FDI when uncertainty is reduced.

Keywords: Foreign Direct Investment; Imperfect Competition; Trade Liberalization; Real Options (search for similar items in EconPapers)
JEL-codes: D21 D25 F23 (search for similar items in EconPapers)
Date: 2017-11-15
New Economics Papers: this item is included in nep-com, nep-gth and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Duopolistic Competition and Optimal Switching Time from Export to FDI in Uncertainty (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2017s-23

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