Playing away to win at home

Reference:

Leahy, D. and Pavelin, S., 2008. Playing away to win at home. Journal of Economics and Business, 60 (5), pp. 455-468.

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Official URL:

http://dx.doi.org/10.1016/j.jeconbus.2007.08.001

Abstract

This paper presents a model of the interaction between two rival firms based in the same country. Each firm must decide how to serve a foreign market (export or foreign production) and how much to invest in a corporate-wide asset that reduces production costs and/or augments the willingness-to-pay for their product. In this scenario, the firms’ foreign direct investment decisions are interdependent. Furthermore, strategic motives for FDI relate to a firm's domestic, as well as foreign, market profits. One possibility is that a firm sets up overseas production even though its foreign market profits would be higher by exporting.

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