University of Piraeus. International Strategic Management Association
Abstract
A multinational corporation’s (MNC) entry into a host country brings benefits to the
economy of that country, some direct (such as increasing production and employment) and
some indirect (such as productivity spin-off). Governments that view MNCs as engines for
growth and regional development have begun to encourage the flow of foreign investment
into their country in hopes of increased local employment, market production and export
capacity. MNCs consider first the maximization of profit when selecting a site to establish
their subsidiaries. An MNC examines possible investment sites and indicates those that are
best fitted for the investment. The countries that remain at this stage are similar in terms of
their economic characteristics, and they compete with each other for receiving the foreign
investment.
In this paper we use tools from auction theory to analyze the competition between
host countries and MNCs and investigate the existence of Nash equilibrium strategies. The
characteristics of this equilibrium are considered and assessed.
We developed a general model for examining the incentive competition between two
countries and then apply it for several subgroups according to the number of MNCs and the
availability of information. It turns out that the characteristics of the equilibrium depend on
the number of MNCs as well as on the structure of their contribution to the host country
economy.peer-reviewe
