VERTICAL RELATED MARKET AND FOREIGN DIRECT INVESTMENT

• Main Authors: Yun-yu Hsieh, 謝昀佑
• Other Authors: Chia-chi Wang
• Format: Others
• Published: 2016
• Online Access: http://ndltd.ncl.edu.tw/handle/38173969224047111809

碩士 === 大同大學 === 事業經營學系(所) === 104 === This paper analyzes a foreign firm’s entry mode (Greenfield FDI or merge) under the vertical market. We analyze the impacts of the foreign firm’s entry mode on intermediate goods price, equilibrium output and host country’s welfare when the foreign firm enters the upstream market of host country. In this paper, we consider a two country model. The foreign country exists an upstream firm who decides to enter the upstream market of host country by Greenfield of merge. The domestic country exists numbers of upstream firms and a downstream firm. The upstream firms provide intermediate goods to downstream firm in the uniform price. We further explore the influence of two country firms’ relatively cost and the competitive degree of upstream market on the foreign firm’s entry mode. Besides, we analyze whether the foreign firm’s entry is in accordance with host country’s anticipation. We find that the foreign firm’s entry mode depends on the relative costs of the two countries’ upstream firms and the degree of competition in the upstream market. When the cost difference of the two countries’ upstream firms is small, the foreign firm will choose Greenfield; on the contrary, when the cost difference of the two countries’ upstream firms is large, the foreign firm will choose merge. Furthermore, the price (the total output) of intermediate goods under Greenfield regime is lower than that under merge regime. Next, if competition degree of the upstream market is relatively low, an incentive of the foreign firm to choose Greenfield is increasing with the number of upstream firms. Finally, whether the foreign firm’s entry mode which is consistent with host country’s hope depends on the foreign firm’s production efficiency. Only when the foreign firm’s production costs low enough, the foreign firm’s mode will in accordance with host country’s expectation.