Thomas Müller : Modes of Foreign Entry under Asymmetric Information about Potential Technology

This paper studies the e®ect 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: Green ̄eld investment versus acquisition. We ̄nd 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 ̄nd that asymmetric information always hurts the entrant, while it sometimes is in favor of the host country. J E L -c la s s ī c a t io n n u m b e r s : D 4 3 , F2 1 , F2 3 , L 1 3 , P 3 1 . K e ywo r d s : Fo r e ig n d ir e c t in ve s t m e n t , m u lt in a t io n a l e n t e r p r is e , e n t r y m o d e , t e c h n o lo g y s p illo ve r s , a s ym m e t r ic in fo r m a t io n , t r a n s it io n e c o n o m ie s . ¤I w ou ld lik e to th an k Mon ik a S ch n itzer for h elp fu l com m en ts an d su ggestion s. Fin an cial su p p or t th r ou gh Deu tsch e For sch u n gsgem ein sch aft gr an t S ch n 422/2-1 is gr atefu lly ack n ow led ged . y Dep ar tm en t of E con om ics, U n iv er sity of Mu n ich , A k ad em iestr . 1/III, 80799 Mu n ich , Ger m an y , T el.: +49-89-2180 3953, Fax .: +49-89-218