Modes of Foreign Entry under Asymmetric Information about Potential Technology Spillovers

This paper studies the effect of technology spillovers on 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. We find that
with quantity competition a spillover makes acquisitions less
attractive, while with price competition acquisitions become more
attractive. Asymmetric information about potential spillovers
always reduces the number of acquisitions independently of whether
the host country or the entrant has private information.
Interestingly, we find that asymmetric information always hurts the
entrant, while it sometimes is in favor of the host country.