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Collective Entry Deterrence and Free Riding: Airbus and Boeing in China

Abstract : We propose a simple two-stages duopoly game where two firms produce an homogeneous good to satisfy the demand in a foreign market. First they decide whether to serve this market with exports or with foreign direct investments and then they play a one-shot Cournot-Nash game. This game has been made even more complex by the fact that foreign direct investments induce technological spillovers which imply the possible entry of a third firm. From the complete characterization of the equilibria we show that a small disadvantage of one of the both firms can conduce this firm to invest alone in the foreign country rather than export. In this case, the investment is motivated by the fact that the dissipation risk of both firm-specific assets to a local potential entrant -triopoly payoffs- is beared by the two firms whereas the gain -increased market share in duopoly- is captured by the firm which chooses to invest abroad. We have in mind the competition between Airbus and Boeing in China.
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Submitted on : Monday, May 27, 2019 - 4:31:19 PM
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Patrice Cassagnard, Pierre Regibeau. Collective Entry Deterrence and Free Riding: Airbus and Boeing in China. 2018. ⟨hal-02141056⟩

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