Economics

A game theoretic analysis of firms' entry mode decisions

Document Type

Article

Abstract

Limited research has been completed using formal modelling to investigate a firm's entry mode decisions. Addressing this issue, we formulate Dunning's eclectic model as a game theoretic problem. We develop a novel three-stage game theory model to investigate the relationships and nuances of the core constructs of the eclectic model, i.e., ownership advantage, location advantage and internalisation (OLI). We develop an equilibrium solution to identify the optimal entry decisions for firms entering new markets using a two firm-two country scenario when parameters including ownership advantage of firms, market size, production cost and country risks are varied. The results obtained provide insight for future research as well as having significant practical implications.

Publication Title

International Journal of Operational Research

Publication Date

2016

Volume

26

Issue

2

First Page

196

Last Page

220

ISSN

1745-7645

DOI

10.1504/IJOR.2016.076301

Keywords

game theory, internalisation advantage, internationalisation, location advantage, ownership advantage, production

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