A home firm signals her private cost information by expanding in a foreign firm’s country. Credible signalling to deter counter-entry may occur through a direct investment (but not through exports), and may even entail entering an unprofitable market. While this produces social benefits, uninformative signalling may be welfare-reducing. Hence, we argue that moderate to high location costs may be socially desirable. We also show that there are not simple monotonic relationships between technology/demand conditions and firms’ entry modes. Thus, the signalling interpretation of international expansion makes it possible to explain some controversial empirical findings on a theoretical ground.

Foreign Market Entry Strategies under Asymmetric Information / Nastasi, Alberto; Reverberi, Pierfrancesco. - In: REVIEW OF INTERNATIONAL ECONOMICS. - ISSN 0965-7576. - 15:4(2007), pp. 758-781. [10.1111/j.1467-9396.2007.00681.x]

Foreign Market Entry Strategies under Asymmetric Information

nastasi alberto
;
reverberi pierfrancesco
2007

Abstract

A home firm signals her private cost information by expanding in a foreign firm’s country. Credible signalling to deter counter-entry may occur through a direct investment (but not through exports), and may even entail entering an unprofitable market. While this produces social benefits, uninformative signalling may be welfare-reducing. Hence, we argue that moderate to high location costs may be socially desirable. We also show that there are not simple monotonic relationships between technology/demand conditions and firms’ entry modes. Thus, the signalling interpretation of international expansion makes it possible to explain some controversial empirical findings on a theoretical ground.
2007
Foreign direct investments; exports; oligopolistic rivalry; signalling games
01 Pubblicazione su rivista::01a Articolo in rivista
Foreign Market Entry Strategies under Asymmetric Information / Nastasi, Alberto; Reverberi, Pierfrancesco. - In: REVIEW OF INTERNATIONAL ECONOMICS. - ISSN 0965-7576. - 15:4(2007), pp. 758-781. [10.1111/j.1467-9396.2007.00681.x]
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