MANAGEMENT BEHAVIOUR AND A THEORY OF DIVERSIFICATION

This paper investigates the basis for a behavioural theory of diversification. A theory of diversification may be required (i) for full analysis of competitive processes, which include innovation and cross‐entry competition, and (ii) to understand the selection of diversification projects in individual firms. Alternative optimising and non‐optimising models are feasible. The choice between these alternatives will be considered after the non‐optimising model has been developed.

Section I outlines the basic model and the general predictions which it generates. In section II the predictions are subjected to a coarse test, which is taken to justify further investigation of the model's properties. The model is developed more fully in section III.