Analyzing Modes of Foreign Entry

This paper studies the entry decision of a multinational enterprise
into a foreign market. Two alternative entry modes for a foreign
direct investment are considered: Greenfield investment versus
acquisition. In contrast to existing approaches, the acquisition
price and the profits under both entry modes are endogenously
determined. Interestingly, we find that the optimal entry mode
decision is a ected by the competition intensity in the market in a
non-monotonic way. When markets are very much or very little
competitive, greenfield investment is the optimal entry mode, while
for intermediate values it is acquisition.