This is a thoroughly revised version of its earlier draft. We are greatly indebted to the editor and two anonymous referees of this journal for their valuable comments, observations and suggestions. However, all remaining errors are ours.
Foreign Entry, Acquisition Target and Host Country Welfare
Version of Record online: 1 AUG 2014
© 2014 The University of Manchester and John Wiley & Sons Ltd
The Manchester School
Volume 83, Issue 6, pages 725–748, December 2015
How to Cite
Kabiraj, T. and Sinha, U. B. (2015), Foreign Entry, Acquisition Target and Host Country Welfare. The Manchester School, 83: 725–748. doi: 10.1111/manc.12084
- Issue online: 25 SEP 2015
- Version of Record online: 1 AUG 2014
- Manuscript Revised: 27 JUN 2014
- Manuscript Received: 1 APR 2013
We discuss entry strategy of a foreign multinational into a local market with initially two asymmetric local firms. We show that greenfield investment occurs when both local cost asymmetry and subsidiary set up cost are small, exporting occurs when both trade cost and technology gap are low, otherwise acquisition occurs. Under acquisition equilibrium the less efficient firm is acquired unless the cost of technology transfer is large enough. We focus on the process of selection of the target firm by constructing sequential offer game, bidding game and repeated offer game. However, the MNC's entry always reduces host country welfare.