Entry, Location and R&D Decisions in an International Oligopoly

University of Nottingham Research Paper No. 2004/32

36 Pages Posted: 2 Aug 2005

Abstract

We examine two questions, both motivated by an empirical regularity. First, when are incumbent firms' foreign direct investment (FDI) and R&D expenditures positively associated in equilibrium in an international oligopoly? We show that a positive association can be expected to exist only if most of the variation between observations represents market size differences: large markets support the sunk costs of both FDI and R&D. Second, when will incumbent firms in an international oligopoly use FDI to pre-empt entry into the industry by outside firms and thereby maintain concentration? We find that entry-deterring FDI is feasible only in intermediate-sized markets and that, due to free riding, it is underprovided in equilibrium from the viewpoint of the incumbent oligopoly.

Keywords: Foreign Direct Investment, Process R &D, Entry, International Oligopoly, Equilibrium Industrial Structure

JEL Classification: F21, F23, L13, O31

Suggested Citation

Ferrett, Ben, Entry, Location and R&D Decisions in an International Oligopoly. University of Nottingham Research Paper No. 2004/32, Available at SSRN: https://ssrn.com/abstract=764224 or http://dx.doi.org/10.2139/ssrn.764224

Ben Ferrett (Contact Author)

Loughborough University ( email )

School of Business and Economics
Loughborough University
Loughborough, LE11 3TU
Great Britain

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