A consumer-surplus standard in foreign acquisitions, foreign direct investment, and welfare

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2019-02-01

Author

Koska, Ahmet Onur

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This study scrutinizes the ramifications of the strategic use of a consumer welfare argument in regulating foreign acquisitions and foreign market entry (i) on a multinational's choice between acquiring a local firm's existing assets (via negotiations or auctions) and investing in new assets via greenfield entry, or trade, under both complete and incomplete information; and (ii) on welfare. Any foreign acquisition fulfilling a minimum output requirement imposed by the host country as part of the foreign market entry regulation is in the best interest of the multinational even when there is complete trade liberalization. A local firm appropriates a bigger share from acquisition gains in an auction, and prefers generating information asymmetries. Welfare improves with a larger scope for ex-post firm heterogeneity when the foreign market entry regulation includes a minimum output requirement for foreign acquisitions based on consumer welfare.

Subject Keywords

General Economics, Econometrics and Finance

URI

https://hdl.handle.net/11511/56569

Journal

REVIEW OF WORLD ECONOMICS

DOI

https://doi.org/10.1007/s10290-018-0324-6

Collections

Department of Economics, Article

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Citation Formats

A. O. Koska, “A consumer-surplus standard in foreign acquisitions, foreign direct investment, and welfare,” REVIEW OF WORLD ECONOMICS, pp. 149–179, 2019, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/56569.