TY  - JOUR
AU  - Horstmann,Ignatius J.
AU  - Markusen,James R.
TI  - Exploring New Markets: Direct Investment, Contractual Relations and the Multinational Enterprise
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5029
PY  - 1995
Y2  - February 1995
UR  - http://www.nber.org/papers/w5029
L1  - http://www.nber.org/papers/w5029.pdf
N1  - Author contact info:
James R. Markusen
Department of Economics
University of Colorado
Boulder, CO 80309-0256
Tel: 303/492-0748
Fax: 303/492-8960
E-Mail: james.markusen@colorado.edu
AB  - We consider the multinational firm's decision on whether to enter a new market immediately via direct investment or to contract initially with a local agent and (possibly) invest later.  Use of a local agent allows the multinational to avoid costly mistakes by finding out if the market is large enough to support direct investment.  However, the agent is able to extract information rents from the multinational due to being better informed about market characteristics.  We find that direct investment is the desirable mode of entry when the market is on average large and there is little down- side risk in expected profits.
ER  -