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We examine the exports versus foreign direct investment (FDI) decision under demand uncertainty for an asymmetric cost duopoly. One of the firms can lead entry before demand realization or retain… Click to show full abstract
We examine the exports versus foreign direct investment (FDI) decision under demand uncertainty for an asymmetric cost duopoly. One of the firms can lead entry before demand realization or retain flexibility enjoying an informational advantage. When the time value of information is small and for sufficiently low investment costs, follow‐the‐leader behavior in FDI arises. Relatively high investment (fixed) costs result in follow‐the‐leader exporting behavior. When the time value of information becomes significant, the potential leader will opt for a wait‐and‐see strategy. For intermediate values of investment costs, the efficient firm invests, while the rival chooses to export.
Journal Title: Managerial and Decision Economics
Year Published: 2019
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