Content area
Abstract
The thesis describes how entry into a foreign market is determined by a firm seeking profit opportunities abroad, and the competitive consequences of such entry on the market structure, as compared with entry into the same market by a domestic native firm. In the theoretical analyses of the issue, various versions of multi-stage game-theoretic models are constructed, in which the three players are a domestic incumbent firm, a foreign firm as a prospective entrant into the market, and a domestic potential entrant. It can be shown that when the foreign entrant has a first-mover advantage, it can deter domestic entry for a wide range of parameter values by choosing direct foreign investment instead of exporting, confirming the intuition that potential entrants themselves deter entry. We also consider the case in which it is costly to obtain the first-mover advantage. We analyze how the first-mover advantage is endogenously determined in this case. By including the government as the fourth player in the game, we show that the government can promote domestic entry by banning one or both of the two modes of foreign entry. With the differentiated product model, the entrants are assumed to make decisions on entry and variety simultaneously. It can be shown that the strategic value of the first-mover advantage is enhanced, since the entrant who moves first can foreclose the market by appropriately choosing its product variety. We also explore the issue empirically by using a data base consisting of Canadian manufacturing industries and test a number of theoretical predictions. A simultaneous equations system with censored dependent variables strongly supports the theoretical interdependence among different types of entry. It is also confirmed that the theoretical models of entry yield valuable predictions only for the entry by plant creation, while entry by plant acquisition should be explained by different economic variables.