Knickerbocker (1973) introduced ‘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 behaviour. 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 the Knickerbocker prediction relies on risk aversion and derive an expression for the minimum amount of risk aversion needed to generate oligopolistic reaction.
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Find related papers by JEL classification: F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business R30 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - General
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