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Endogenous Market Structure and Foreign Market Entry

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  • James R. Markusen
  • Frank Stähler

Abstract

Models dealing with cross-border acquisitions versus greenfield investment usually assume that the entry of a foreign firm into a market has effects on the outputs of all domestic firms in that market, but exit or entry of local firms is not considered. The purpose of this paper is to re-examine the acquisition versus greenfield versus exporting question under fixed versus free entry assumptions for local firms. Our finding is that greenfield entry and exporting options are more attractive relative to acquisition when the local market structure adjusts to foreign entry through local entry or exit than when it is fixed. The entering foreign firm may do better or worse under free entry versus a fixed market structure depending on its optimal choice under the latter assumption.

Suggested Citation

  • James R. Markusen & Frank Stähler, 2009. "Endogenous Market Structure and Foreign Market Entry," NBER Working Papers 15530, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15530
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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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