I thank Monika Schnitzer, Dalia Marin, Theo Eicher, Björn Achter, and an anonymous referee for valuable comments. Financial support through DFG grant Schn 422/2-1 and 422/2-2 is gratefully acknowledged. The views expressed in this paper are those of the author and do not reflect those of BaFin.
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Analyzing Modes of Foreign Entry: Greenfield Investment versus Acquisition
Article first published online: 21 NOV 2006
DOI: 10.1111/j.1467-9396.2006.00634.x
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How to Cite
Müller, T. (2007), Analyzing Modes of Foreign Entry: Greenfield Investment versus Acquisition. Review of International Economics, 15: 93–111. doi: 10.1111/j.1467-9396.2006.00634.x
Publication History
- Issue published online: 21 NOV 2006
- Article first published online: 21 NOV 2006
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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 affected by the competition intensity in the market in a nonmonotonic way. When markets are very much or very little competitive, greenfield investment is the optimal entry mode, while for intermediate values it is acquisition.