Oligopolistic Reaction and Foreign Direct Investment: The Case of the U.S. Tire and Textiles Industries

Why Do Firms Imitate Each Other?

“…Motta (1994) gives a game theoretic explanation for this follow-the-leader behavior, and Head, Mayer & Ries (2002) show that it can be sustained only when managers are risk averse. Table 1 lists many empirical studies that provide evidence on the existence of "follow-the-leader" behavior in foreign market entry (e.g., Knickerbocker, 1973;Flowers, 1976;Caves et al, 1980;Yu & Ito, 1988;Yamawaki, 1998). Other studies in the strategic group literature (e.g., Fiegenbaum & Thomas, 1995;Garcia-Pont & Nohria, 2002) show that firms are likely to imitate other group members in an effort to maintain competitive parity.…”

“…Caves, Porter, & Spence (1980) FDI in Canada by US firms Bunching of entry is positively related with home market concentration. Yu & Ito (1988) FDI by US tire and textile firms Bunching of entry is positively related with home market concentration. Kogut & Chang (1991) FDI in the US by Japanese firms Bunching of entry is positively related with home market concentration.…”

Greenfield vs. Acquisition: The Strategy of Japanese Investors in the United States

“…Second, late entrants ( "followers" ) in oligopolistic industries may choose acquisitions over greenfields in order to speed up their response to the competitive threat posed by the entry of "leaders" in foreign markets (Knickerbocker 1973;Dubin 1976;Wilson 1980, Davidson 1982, Caves and Mehra 1986Yu and Ito 1988).…”

Location Choices Under Strategic Interactions

“…Our approach draws on original work in international business (Knickerbrocker, 1973;Flower, 1976;Hymer, 1976;Yu & Ito, 1988) that introduced strategic interaction as a trigger for firms expanding abroad. We bring modeling tools from IO that were not available at that time, allowing us to better delineate the effect of strategic interaction on location choices.…”

“…Given that the research in strategy-particularly in FDI-and IO both deal with oligopolistic industries, one might be surprised by the sparseness of recent research applying IO concepts and tools, such as game theory or multimarket contact, to explain MNE location choices. This is particularly surprising given that seminal papers in FDI drew heavily on industrial organization (Knickerbrocker, 1973;Hymer, 1976;Yu & Ito, 1988). The small literature that does use strategic interaction to explain MNEs' location behavior is promising.…”