Technical Compatibility and the Mode of Foreign Entry with Network Externalities
|Title:||Technical Compatibility and the Mode of Foreign Entry with Network Externalities|
|Publication Date:||February 2007|
|Published In:||Canadian Journal of Economics|
We examine the preferences of a foreign firm and a local government over two modes of foreign direct investment: de novo entry and acquisition of the domestic incumbent. Two crucial features of the model are network externalities and partial incompatibility between the domestic and the foreign technology. The relative welfare impact of the two entry modes depends on the degree of market competition and the strength of the network externality. The clash between the foreign firm's choice and the local government's ranking of the two entry modes can motivate limits on the degree of foreign ownership of the local firm.
|Ivan Allen College Contributors:|
|External Contributors:||Kamal Saggi (Vanderbilt University)|
Klimenko, Mikhail M. and Kamal Saggi. "Technical Compatibility and the Mode of Foreign Entry with Network Externalities." Canadian Journal of Economics 40.1 (2007): 176-206.