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

Author

Listed:
  • Keith Head

    (Sauder - Sauder School of Business [British Columbia] - UBC - University of British Columbia)

  • Thierry Mayer

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • John Ries

    (Sauder - Sauder School of Business [British Columbia] - UBC - University of British Columbia)

Abstract

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.

Suggested Citation

  • Keith Head & Thierry Mayer & John Ries, 2002. "Revisiting oligopolistic reaction: are decisions on foreign direct investment strategic complements?," Post-Print hal-01017589, HAL.
    • Handle: RePEc:hal:journl:hal-01017589
    DOI: 10.1111/j.1430-9134.2002.00453.x
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01017589
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    3. Loshchenkova, A. & Zaytsev, Yu., 2019. "The impact of exchange rate dynamics on foreign direct investments inflow to the Russian Federation," Journal of the New Economic Association, New Economic Association, vol. 44(4), pages 127-142.
    4. Claudio Giachetti & Ettore Spadafora, 2017. "Conformity or Nonconformity in Multinationality? Performance Implications for the Italian Ceramic Tile Manufacturers," Management International Review, Springer, vol. 57(5), pages 683-715, October.
    5. Christophe Caron & Thierry Lafay, 2008. "How Risk Disciplines Pre-Commitment," Theory and Decision, Springer, vol. 65(3), pages 205-226, November.
    6. Hsieh, Kai-Yu & Hyun, Eunjung (E.J.), 2018. "Matching response to competitors' moves under asymmetric market strength," Journal of Business Research, Elsevier, vol. 82(C), pages 202-212.
    7. Carlo Altomonte & Enrico Pennings, 2003. "Oligopolistic Reaction to Foreign Investment in Discrete Choice Panel Data Models," Working Papers 243, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    8. Cecilia Wiedeck & Andreas Engelen, 2018. "The copycat CMO: firms’ imitative behavior as an explanation for CMO presence," Journal of the Academy of Marketing Science, Springer, vol. 46(4), pages 632-651, July.
    9. Roberto Josep Martí & Maite Alguacil & Vicente Orts, 2013. "Where do foreign affiliates of Spanish multinational firms locate in developing and transition economies?," Working Papers 2013/19, Economics Department, Universitat Jaume I, Castellón (Spain).
    10. Dinkar Nayak & Rahul N. Choudhury, 2014. "A selective review of foreign direct investment theories," ARTNeT Working Papers 143, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    11. Maja Barac & Rafael Moner‐Colonques, 2022. "Leadership in internationalization strategies," Manchester School, University of Manchester, vol. 90(3), pages 293-318, June.
    12. Fiona Kun Yao & Ming-Jer Chen & Jiatao Li & Danielle Combs & Qiang Li, 2024. "A review of 50 years of research since Knickerbocker (1973): competitive dynamics in international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 55(5), pages 522-550, July.
    13. Verdiana Giannetti & Gaia Rubera, 2020. "Innovation for and from emerging countries: a closer look at the antecedents of trickle-down and reverse innovation," Journal of the Academy of Marketing Science, Springer, vol. 48(5), pages 987-1008, September.
    14. GEORGANTZIS, Nikolaos & moner-colonques, Rafael & ORTS, Vicente & SEMPERE-MONERRIS, José J., 2012. "Theoretical and experimental insights on firms’ internationalization decisions under uncertainty," LIDAM Discussion Papers CORE 2012041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    15. Stiegert, Kyle W. & Ardalan, Archie Amir & Marsh, Thomas L., 2006. "Foreign-Market Entry Strategies in the European Union," Journal of Food Distribution Research, Food Distribution Research Society, vol. 37(3), pages 1-12, November.
    16. Altomonte, Carlo & Pennings, Enrico, 2008. "Learning from foreign investment by rival firms: Theory and evidence," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1203-1217, September.
    17. Sels, A.T.H., 2006. "Foreign direct investment as an entry mode. An application in emerging economies," Other publications TiSEM 583ca9b5-1691-425d-8f77-0, Tilburg University, School of Economics and Management.

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