Strategic Management: Formulation and Implementation

Other Theories

The Knickerbocker's follow-the-leader theory argued that, as risk minimizers, oligopolist, wishing to avoid destructive competition, would normally follow each other into (e.g., foreign) markets, to safeguard their own commercial interests.

This theory is considered defensive because competitors are investing to avoid losing the markets served by exports when their initial investor begins local production. They may also fear that the initiator will achieve some advantage of risk diversification that they will have unless they also enter the market.

Cross Investment Theory

(E. M. Graham). Graham noted a tendency for cross investment by European and American firms in certain oligopolistic industries; that is, European firms tended to invest in the United States when American companies had gone to Europe.

He postulated that such investments would permit the American subsidiaries of European firms to retaliate in the home market of U.S. companies if the European subsidiaries of these companies initiated some aggressive tactic, such as price cutting, in the European market.