GEP Research Paper 03/37
Foreign market entry: a theoretical analysis
Arijit Mukherjee and Soma Mukherjee
Abstract
This paper considers investment strategies of a foreign firm in a host country. The foreign firm apprehends that knowledge spillover will encourage entry in the host country. We show that foreign firm delays its investment for sufficiently lower threat of entry. If threat of entry is sufficiently strong, it invests at the beginning with its superior technology. For intermediate threat of entry, we find that foreign firm brings its relatively inferior technology initially and superior technology in future when threat of entry has been eliminated. If inferior technology of foreign firm too creates threat of entry, it reduces effectiveness of introducing technologies sequentially. Further, we show that there may be a conflict between foreign firm's optimal decision and welfare of the host country.
Issued in October 2003.
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