81 research outputs found
Multinational Firms, Technology and Location
This paper analyzes a three-stage optimization problem in which a firm chooses (i) its technology, by deciding on a level of R&D, (ii) whether this technology is to be used in a domestic or in a foreign plant and (iii) the quantity produced and sold on the market. If technology transfer costs are low, "high-tech" or R&D-intensive firms tend to produce abroad. At higher technology transfer costs, high-tech firms tend to export. An empirical analysis using a data set of Swedish multinational firms, confirms the latter prediction.Multinational Firms; R&D; Location; Empirical Analyses
Cumulative Effects of Labor Market Distortions in a Developing Country
This paper considers a small open economy with an input-output industrial structure that creates vertical linkages and multiple equilibria. An imperfect labor market is introduced by assuming unionized labor. It is shown that a deregulation of the labor market may trigger a large discontinuous expansion of industrial output, as reduced wage-costs start a circular, cumulative process in which expansions of the up-and downstream industries promote each other. Centralization of collective bargaining may, however, also be conductive to industrialization.Vertical linkages; Multiple equilibria; Labor unions
The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists, and Oligopolists
The starting point of this paper is that the exit of venture-backed firms often takes place through sales to large incumbent firms. We show that in such an environment, venture-backed firms have a stronger incentive to develop basic innovations into commercialized innovations than incumbent firms, due to strategic product market effects. In turn, this will increase the price for basic innovations, thereby triggering more basic innovations by entrepreneurs. Consequently, the presence of a venture capital market implies that more basic innovations are created and that these become better developed.Acquisitions; Entrepreneurship; Innovation; Venture Capital
Investment Lilberalization - Why a Restrictive Cross-Border Merger Policy can be Counterproductive
Investment liberalizing countries are often concerned that cross-border mergers & acquisitions, in contrast to greenfield investments, might have an adverse effect on domestic firms and consumers. However, given that domestic assets are sufficiently scarce, we identify a preemption effect and an asset complementarity effect, which imply that the acquisition price is significantly higher than the domestic seller's profits. Moreover, we show that for the acquisition to take place, the MNE must be sufficiently efficient when using the domestic assets, otherwise rivals will expand their business, thereby making the acquisition unprofitable. Consequently, restricting cross-border M&As may also hurt consumers.Investment Liberalization; Mergers & Acquisitions; Development; Ownership
Cross-Border Acquisitions and Greenfield Entry
We investigate the interaction between cross-border acquisitions and greenfield entry in a multi-firm setting. It is shown that the net profits of the acquirer may decrease when the acquisition gives the acquirer a strong position in the product market, relative to greenfield entrants. The reason is that the price of the assets increases more than the acquirer's profit, due to strategic interaction effects in the product market. The paper also provides an explanation why MNEs entering a new market by acquisitions may make a lower profit than MNEs entering greenfield. A greenfield entrant faces the risk of not being able to successfully locate production due to the lack of knowledge of characteristics of the local market. The bidding competition between the MNEs for being successfully located in the market then drives up the acquisition price to such a level that being a successful greenfield entrant is, ex post, more profitable.  Investment Liberalization; FDI; Mergers & AcquisitionsÂ
Entrepreneurial Innovations, Competition and Competition Policy
We show that, in the case when innovations are for sale, increased product market competition, captured by reduced product market profits, can increase the incentives for innovations. The reason is that the incentive to innovate depends on the acquisition price which, in turn, might increase despite firms in the market making lower profits. We also show that stricter, but not too strict, merger and cartel policies tend to increase the incentive for innovations for sale by ensuring the bidding competition for the innovation and by increasing the relative profitability of being the most efficient firm in the industry. Moreover, it is shown that increased intensity of competition can increase the relative profitability of innovation for sale, relative to innovation for entry.Acquisitions; Entrepreneurship; Innovation; Competition
Privatization and Restructuring in Concentrated Markets
This paper examines the restructuring of state assets in markets deregulated by privatizations and investment liberalizations. We show that the government has a stronger incentive to restructure than the buyer: A firm restructuring only takes into account how much its own profit will increase. The government internalizes that restructuring increases the sales price not only from the increase in the acquirer's profit, but also from a reduced profit for the non-acquirer, whose profits decrease due to its rival's restructuring. We also identify situations where a slow sale can significantly reduce the sales price because of strategic investment and product market effects.Privatization; Asset Ownership; Restructuring
Investment Liberalization - Who Benefits from Cross-Border Mergers & Acquisitions?
Investment liberalizing countries are often concerned that cross-border mergers & acquisitions might have an adverse effect on domestic firms and benefit multinational enterprises (MNEs). However, given that domestic assets are sufficiently scarce, we identify a preemption effect and an asset complementarity effect which imply that the acquisition price is substantially higher than the domestic seller's reservation price. The preemption effect also implies that the seller might capture some of the MNEs' initial rents. Moreover, other policies used in times of investment liberalization, such as restructuring, are explained through their effect on the value of the domestic assets.Investment Liberalization; FDI; Mergers & Acquisitions; Restructuring
Endogenous Asset Ownership Structures in Deregulated Markets
This paper determines the equilibrium ownership structure in an emerging market deregulated by privatization and investment liberalization. It is shown that bidding competition in the privatization stage is necessary but not sufficient for reaching an efficient equilibrium market structure. Competition in the ensuing entry stage is also necessary. Otherwise, one firm can induce another to take the role of the weak firm in the subsequent product market competition, by making concessions in the bidding in the privatization auction. It is also shown that Employment Guarantees may "help" the buyer of the privatized firm "abstain" from investing and by that creating a less competitive market structure.Privatization; Ownership; FDI; Auctions; Employment Guarantees
The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists
We construct a model where incumbents can either acquire basic innovations from entrepreneurs, or wait and acquire developed innovations from entrepreneurial firms supported by venture capitalists. We show that venture-backed entrepreneurial firms have an incentive to overinvest in development vis Ă vis incumbents due to strategic product market effects on the sales price of a developed innovation. This will trigger preemptive acquisitions by incumbents, thus increasing the reward for entrepreneurial innovations. We also show that venture capital can emerge in equilibrium if venture capitalists have cost advantages, or if development is associated with double moral hazard problems.Acquisitions; Entrepreneurship; Innovation; Venture Capital
- âŠ