Vertical FDI is explained by the oligopoly theory of advantage. The oligopolistic big firms tend to dominate in the global market on account of entry barriers such as:
10 points mistake
The big firms intend to retain their monopoly power by sustaining these entry barriers. They do not want new competitors to enter by allowing the market vacuum. They, thus, want growth maximisation of the firm. A firm's relative rate of growth determines its relative size and relative market power. Through vertical direct foreign investment they trend to capture and enlarge market share into the global market. The oligopoly theory thus, explains defensive investment behaviour of a multinational firm.
In short, monopolistic advantage theory explains first course of investment of a business firm in a foreign country. The oligopoly theory explain the defensive investment behaviour in terms of oligopolistic reaction to retain the monopoly power of the firm.
Besides, thorough horizontal and vertical integration in FDI, the multi-national firm can yield the production-scale economies and comparative cost advantage resulting into over all competitive advantage. The oligopoly multi-national firm can internalise external economies of scale by advantage of backward integration to forward integration. For this reason, petroleum companies tend to land invested in crude oil refineries as well as marketing out-lets.
 
Vertical FDI is explained by the oligopoly theory of advantage. The oligopolistic big firms tend to dominate in the global market on account of entry barriers such as:10 points mistakeThe big firms intend to retain their monopoly power by sustaining these entry barriers. They do not want new competitors to enter by allowing the market vacuum. They, thus, want growth maximisation of the firm. A firm's relative rate of growth determines its relative size and relative market power. Through vertical direct foreign investment they trend to capture and enlarge market share into the global market. The oligopoly theory thus, explains defensive investment behaviour of a multinational firm.In short, monopolistic advantage theory explains first course of investment of a business firm in a foreign country. The oligopoly theory explain the defensive investment behaviour in terms of oligopolistic reaction to retain the monopoly power of the firm.Besides, thorough horizontal and vertical integration in FDI, the multi-national firm can yield the production-scale economies and comparative cost advantage resulting into over all competitive advantage. The oligopoly multi-national firm can internalise external economies of scale by advantage of backward integration to forward integration. For this reason, petroleum companies tend to land invested in crude oil refineries as well as marketing out-lets.
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