Oligopolistic Reaction to Foreign Investment in Discrete Choice Panel Data Models

Carlo Altomonte () and Enrico Pennings

No 243, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: We offer a simple explanation for oligopolistic reaction based on Bayesian learning by rival firms operating in an uncertain environment. We test the implications of the model through a discrete choice panel data sample of MNEs that have invested in Central and Eastern Europe over the period 1990-1997. Interacting the measure of rivals' investment in country-industry pairs with uncertainty we find strong evidence for oligopolistic reaction, especially through the channel of Bayesian learning postulated by the model. The findings are robust with respect to different model specifications.

Date: 2003
New Economics Papers: this item is included in nep-dcm, nep-ind and nep-mic
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