International Expansion, Diversification and Regulated Firm Nonmarket Strategy
Managerial & Decision Economics. Sept. 2013, Vol. 34 Issue 6, p. 379-396
41 Pages Posted: 18 Jul 2013
Date Written: December 21, 2012
Previous studies have shown that regulated firms diversify for reasons that are different than for unregulated firms. We explore some of these differences by providing a theoretical model that starts by considering the firm-regulator relationship as an incomplete information issue, in which a regulated incumbent has knowledge that the regulator does not have, but the firm cannot convey hard information about this knowledge. The incumbent faces both market and nonmarket competition from a new entrant. In that context, we show that when the firm faces tough nonmarket competition domestically, going abroad can create a mechanism that makes information transmission to the regulator more credible. International expansion can thus be a way to solve domestic nonmarket issues in addition to being a catalyst for growth.
Keywords: Regulation, nonmarket strategy, international investments, diversification
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