Entry into a Foreign Market: Foreign Direct Investment versus Licensing |
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| Authors: | Kamal Saggi |
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| Affiliation: | Saggi: Southern Methodist University. Dallas. TX 75275–0496. Tel: 214-768-3274, Fax: 768-1821, I wish to thank two anonymous referees. Dirk Bergemann, Wilfred Ethier. Amy Glass, Howard Pack, Adel Varghese, Nikos Vettas. and especially Gene Grossman for helpful comments. The usual disclaimer applies. |
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| Abstract: | We compare foreign direct investment (FDI) and technology licensing as two modes of entry into a foreign market. While direct entry via FDI dissipates rents in the host country, opportunistic competition from a licensee may erode rents in the entrant's other markets. Since FDI increases competition in the host country while licensing stifles it. welfare is higher under FDI than under licensing. |
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