THE INCENTIVE ROLE OF GOVERNMENT EXPORT ASSISTANCE PROGRAMS IN FOREIGN MARKETS UNDER ENTRY COMPETITION: A GAME-THEORY ANALYSIS

Initial entry into new export market is often time-consuming and costly. This is particularly so in emerging markets where foreign products are less known. While leading companies may gain substantial initial market share, followers often enjoy lower market entry costs, particularly when the learning experience and market-acceptance gained by the first mover spills over to followers. Such high first-mover cost, relative to the lower follower cost, may lead to an incentive to free-ride and disincentive for first-entry. A game-theoretical model is used to analyze international market entry under follower competition. The competitive environment analyzed in this paper provides a rational foundation for national government to offer export assistance. Government assistance can counteract on the disincentive caused by potential free-riding followers. The differential effects between targeted export assistance and general export assistance are illustrated. Optimal government assistance is suggested.