Prior research and the articles included in this special issue demonstrate that in emerging markets in general and in China in particular, knowledge spillovers exist between foreign firms and domestic firms. As domestic markets become more sophisticated, and competition between domestic firms and foreign firms becomes stronger, knowledge is flowing to and being sourced in many different directions: from overseas head offices to foreign firms then on to domestic firms; from domestic firms to domestic firms; and from domestic firms to foreign firms, and back to the multinational corporations' head offices in the form of reverse spillovers and reverse innovation. We propose that knowledge spillovers, search, and creation in an emerging market are a dynamic and reciprocal process with knowledge flowing between and among foreign and domestic firms. This represents a fertile field for future research and we have identified a number of areas ripe for study.
In this paper, we examine irreversible investment decisions in duopoly games with a variable economic climate. Integrating timing flexibility, competition, and changes in the economic environment in the form of a cash flow process with regime switching, the problem is formulated as a stopping-time game under Stackelberg leader-follower competition, in which both players determine their respective optimal market entry time. By extending the variational inequality approach, we solve for the free boundaries and obtain optimal investment strategies for each player. Despite the lack of regularity in the leader's obstacle and the cash flow regime uncertainty, the regime-dependent optimal policies for both the leader and the follower are obtained. In addition, we perform comprehensive numerical experiments to demonstrate the properties of solutions and to gain insights into the implications of regime switching.
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