chapter  3
30 Pages

Intra-Industry Direct Foreign Investment, Market Structure, Firm Rivalry and Technological Performance

WithEdward M. Graham

This chapter discusses the effects of intra-industry direct foreign investment (IDFI) on market structure of industries and conduct and performance of firms within them. It aims to clarify certain public-policy issues regarding IDFI. The analysis and discussion are limited to effects of IDFI on rates of technological progress in manufacturing industries. Fundamentally, the effect of IDFI is to increase rivalry and seller interdependence in industries where it occurs. Expansion of firms into foreign markets adds a new element to the dynamics of rivalry among product innovators in home markets. European firms would have options in servicing the US market. Many of the considerations in deciding which option to take would be the same as those in the initial expansion of US firms into Europe. The internationalisation of firms via cross-penetration of markets thus significantly increases seller interdependence.