Revisiting oligopolistic reaction: are decisions on foreign direct investment strategic complements?

Keith Head (1) , Thierry Mayer (2) , John Ries (1)

1 Sauder - Sauder School of Business [British Columbia]
2 ECON - Département d'économie (Sciences Po)

Knickerbocker (1973) introduced the notion of oligopolistic reaction to explain why firms follow rivals into foreign markets. We develop a model that incorporates central features of Knickerbocker's story--oligopoly, uncertainty, and risk aversion--to establish the conditions required to generate follow-the-leader behavior. We find that rival foreign investment will make risk-neutral firms less inclined to move abroad once its rivals have done so. We show that Knickerbocker's prediction relies on risk aversion and derive an expression for the minimum amount of risk aversion needed to generate oligopolistic reaction.

Domains: Humanities and Social Sciences; Economics and Finance

Keith Head, Thierry Mayer, John Ries. Revisiting oligopolistic reaction: are decisions on foreign direct investment strategic complements?. Journal of Economics and Management Strategy, 2002, pp.453-472. ⟨hal-01017589⟩