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Title: |
Multinationals, Information Update, and
Product Adaptation |
| Author: |
Shuai, Xiaobing |
| Author
Affiliation: |
U WI |
| Source: |
International Economic Journal, Summer 2000, v. 14, no. 2, pp. 41-66 |
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Publication Date: |
Summer 2000 |
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Abstract: |
This paper develops a dynamic model of
decision making by multinational firms. The firm chooses between
exporting and producing abroad when it expands the market. Bayes
learning is incorporated into this model in addition to fixed cost and
transport cost. Production in a foreign country gives the firm new
information about the demand function. This information is applied to
adjust the firms expectation as well as output choice in the future.
This process not only reduces the risk encountered by a firm in a
foreign market, but also increases acceptance of the product which the
firm manufactures. This paper concludes even if producing abroad loses
money in the first period, the firm may still choose to set up plants in
foreign countries rather than exporting, due to the dynamic information
advantage associated with going multinational. |
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