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Does Market Familiarity Bless Multinational in Strategic Competition

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  • Kwon, Chul-Woo
  • Lapan, Harvey E.

Abstract

This paper considers a competition between two multinationals (U, J) who compete in a third market (K). The multinationals have identical cost structures, but differ in that J comes from a country that is "taste-similar" to K, and hence produces products that match more closely the preferences of K residents. This similarity gives J an advantage in K's market, and if only one firm enters, J can earn higher profits. However, we show: (i) K may benefit more from the entry of the market-familiar firm (U), and (ii) in a strategic competition between the two firms, the market-familiarity may be a strategic disadvantage.

Suggested Citation

  • Kwon, Chul-Woo & Lapan, Harvey E., 2008. "Does Market Familiarity Bless Multinational in Strategic Competition," Staff General Research Papers Archive 32486, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:32486
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    References listed on IDEAS

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    1. Daniel M. Bernhofen, 2001. "Product differentiation, competition, and international trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(4), pages 1010-1023, November.
    2. Luis R Gómez-Mejia & Leslie E Palich, 1997. "Cultural Diversity and the Performance of Multinational Firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(2), pages 309-335, June.
    3. Laszlo Tihanyi & David A Griffith & Craig J Russell, 2005. "The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(3), pages 270-283, May.
    4. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-414, May.
    5. Daniel M. Bernhofen, 2001. "Product differentiation, competition, and international trade," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 34(4), pages 1010-1023, November.
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    Cited by:

    1. Kwon, Chul-Woo, 2013. "An optimal production method for penetrating foreign markets: Standardization, localization, and flexible technology," Economic Modelling, Elsevier, vol. 33(C), pages 398-406.

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