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The explanations of the intentions and motivations for competitive actions in competitive dynamics research have been limited to an anecdote or to inferences based on characteristics of the actions themselves, the firms involved, or the competitive context. In this qualitative study, we explore the micro-rationales expressed by leaders for their tactical actions in a highly competitive setting. We find that current models of competitive behavior are lacking in multiple respects: they focus too much on rivalrous explanations versus internal considerations; they neglect important social utilities; and they ignore forbearance as a vital competitive tool. We find that tactics are potentially powerful strategic weapons. Their power comes from the nuanced complexity, facility, and inscrutability of their human, social, temporal, and configurational rationales.
Letting Go of the Past: Organizational Memory Decay and Firm Competitive Aggressiveness
China Europe International Business School Tieying Yu,
Boston College Javier Gimeno,
This proposal will explore how organizational memory decay about price wars influences the aggressiveness of a firm’s competitive behavior and the crucial contingencies that may govern such influence. We predict that the decay of organizational memories of price wars will increase a firm’s competitive aggressiveness in a given market but that this effect is contingent upon the existence of retrieval cues. Specifically, we argue that this pro-competition effect is weaker when the focal firm repeatedly encounters the same price-war rivals in the same market, when it observes similar wars in other markets, and when infomediaries frequently refer to price war. Finally, we propose that memory decay can be beneficial when the focal firm “forgets” its previous wars and its competitors do not.
The Value of Competitor Information: Evidence from a Field Experiment
To what extent do firms lack knowledge about their competitors’ decisions even when it is easily attainable, and how does this information impact firms’ strategic choices? I explore these questions by running a field experiment in collaboration with Yelp across 3,218 businesses in the personal care industry, where treatment firms receive easily accessible information on their competitors’ prices. At baseline, over 46% of firms are not aware of their competitors’ prices. However, once firms receive this information, they are 17% more likely to change their prices, and do so by improving their alignment with competitor offerings. Evidence from interviews and a follow-up experiment suggest that managerial inattention may be a key barrier that leads firms to fail to realize gains from even readily accessible data.
The distribution of firm size and many other economic variables has been well-documented. This study documents the distribution of firm profit, a key variable whose distribution has received little attention despite its economic salience. Across large samples for contemporary US and European firms as well as historic US firms, only between 27% and 37% of firms have been able to earn profits above their cost of capital over a twenty-year period. A three-parameter stochastic process based on a geometric random walk describes the distribution of observed profits remarkably well and explains why most firms do not earn their cost of capital. Thus, this study provides a deeper understanding into the generation process of long-term profit.