How to go global with differentiated products

This paper employs a three-stage game to analyze the entry preference for foreign firms and host country with product differentiation. We derive a theoretical support of entry decision for multinational enterprises. It finds that lower product differentiation induces higher (lower) technology transfer given a sufficiently low (high) technology transfer cost. Moreover, the foreign firm prefers acquisition given sufficiently low transfer costs just like entering developed countries. However, probability for the equilibrium mode of acquisition to induce higher technology (than direct entry) decreases in product differentiation. We also find that both the government and the foreign firm prefer identical entry mode only when technology transfer cost is at a certain low level. Probability of this identical situation generally decreases in product differentiation. Contrarily, the governments in relatively highly developing countries generally welcome acquisition mode while the foreign firms prefer direct entry.