Product line strategies of new entrants in an established industry: evidence from the U.S. bicycle industry

A firm's product line breadth in a given market has both benefits and costs; these effects can be more clearly seen by examining not only the number of products a firm offers, but also the degree of complexity that the product line represents. The effects of breadth are particularly important for new entrants in a relatively mature industry and I examine the breadth–survival relation on new entrants in the bicycle industry in the period 1993–98. I find that firms offering a greater number of products, those with very simple and very complex product lines, and those whose product lines have a moderate degree of overlap with rivals have the highest survival rates. Copyright © 2006 John Wiley & Sons, Ltd.     

Learning and product entry: How diversification patterns differ over firm age and knowledge domains in U.S. generic drug industry

This study uses learning theory to show how knowledge domains affect product extension decisions and how these product decisions change as firms age. Faced with the choice of new product‐markets, a firm might decide to introduce a similar product, by leveraging existing firm knowledge, or to experiment with a less familiar product, which requires new knowledge. Using data on new drug introductions in the US generic pharmaceutical industry, the analyses showed clear support for heterogeneous product‐market entry patterns across knowledge domains as the firm ages. Across time, the form of learning shifts from exploration to exploitation. Copyright © 2013 John Wiley & Sons, Ltd.     

Capabilities,technologies, and firm exit during industry shakeout: Evidence from the global solar photovoltaic industry

Research Summary: Explanations of entrants’ survival in an emerging industry are premised on pre‐entry capabilities or technology entry choices prior to the emergence of the dominant design. We consider how these drivers interact to strengthen or nullify firms’ pre‐entry advantage, and facilitate adaptation as the industry evolves. We also expand the treatment of exit by separating dissolution from acquisition, in which firms’ capabilities continue to be utilized in the industry. Studying a recent shakeout in the global solar photovoltaic industry, we find that pre‐entry capabilities and technology choices act in a complementary manner for some firms, thereby enhancing survival, and as buffers against exit for others. Nearly half of exits were via acquisitions, and technology choice at entry played an important role in determining how firms exited. Managerial Summary: New industries are often characterized by intense technology competition that culminates in a dominant technology followed by industry shakeout. Although prior research underscores the central role of technology choice and firm capabilities to survival, we do not actually know how firms with different capabilities and who have made competing technology choices survive an industry shakeout. In this article, we show how entrants’ capabilities and technology choices can act in a complementary manner for some firms, enhancing their chance of survival, and as buffers against failure for others. Moreover, we explain why some firms that do exit are acquired, when others are dissolved.     

Product location choice and firm capabilities: evidence from the U.S. automobile industry

We test theories of product differentiation and firm capabilities using data from the U.S. automobile industry. We find managers introduce new models close to their existing ones but far from rival models. We also find entrants and foreign manufacturers locate models closer to rival models. These results are consistent with both economic models of product differentiation and theories of firm capabilities Copyright © 2000 John Wiley & Sons, Ltd.     

Alliance portfolios and firm performance: A study of value creation and appropriation in the U.S. software industry

This study reveals the multifaceted contribution of alliance portfolios to firms' market performance. Extending prior research that has stressed the value‐creation effect of network resources, it uncovers how prominent partners may undermine a firm's capacity to appropriate value from its alliance portfolio. Analysis of a comprehensive panel dataset of 367 software firms and their 20,779 alliances suggests that the contribution of network resources to value creation varies with the complementarity of those resources. Furthermore, the relative bargaining power of partners in the alliance portfolio constrains the firm's appropriation capacity, especially when many of these partners compete in the focal firm's industry. In turn, the firm's market performance improves with the intensity of competition among partners in its alliance portfolio. These findings advance network research by highlighting the trade‐offs that alliance portfolios impose on firms that seek to manage and leverage their alliances. Copyright © 2007 John Wiley & Sons, Ltd.     

Product variety and firm survival in the microcomputer software industry

This article provides an analysis of product variety and scope economies in the microcomputer software industry by using detailed firm‐level and product‐level information on firms' bundling of functionalities over application categories and computing platforms. We find that the management of product variety through the way different application categories are integrated in products and the platforms on which these products are offered can be as important as the significance of scope economies at the more aggregated firm level. Specifically, we find that there is little evidence of firm benefits from economies of scope in production, but there is substantial evidence that products benefit from economies of scope in consumption. In addition, we find that firms with products that encapsulate more application categories perform better, and those with products that cover more computing platforms perform worse. Finally, changes in product variety through new product introductions improve firm performance, but extensions to existing products hinder the performance of the firm and the product. We conclude that research in scope economies can benefit from a more detailed model of the evolution of product variety that includes data and analysis at the firm level and at the product level. Copyright © 2004 John Wiley & Sons, Ltd.     

An empirical analysis of sustained advantage in the U.S. pharmaceutical industry: impact of firm resources and capabilities

The authors test a model of the relationships among firm resources, firm capabilities, and sustained competitive advantage between 1971 and 1989. Sustained comparative advantage was captured by two variables: therapeutic differentiation and global NCEs. The results show that R&D and salesforce expenditures have indirect and direct effects, respectively, on sustained competitive advantage. Firm capabilities were differentiated into component and integrative capabilities. Component capabilities were captured by the firm’s internal R&D efforts and therapeutic market focus, while integrative capabilities were concerned with the firm’s ability to obtain FDA approvals and to develop radical new drugs. Findings on each of these four capabilities on therapeutic differentiation and global NCEs are mixed. The direct and indirect effects of these resources and capabilities on therapeutic differentiation and global NCEs suggest important managerial implications in the way firms coordinate and combine their assets so as to achieve sustained competitive advantage. Copyright © 1999 John Wiley & Sons, Ltd.     

Beyond local search: boundary-spanning,exploration, and impact in the optical disk industry

Recognition of the firm's tendency toward local search has given rise to concepts celebrating exploration that overcomes this tendency. To move beyond local search requires that exploration span some boundary, be it organizational or technological. While several studies have encouraged boundary-spanning exploration, few have considered both types of boundaries systematically. In doing so, we create a typology of exploration behaviors: local exploration spans neither boundary, external boundary-spanning exploration spans the firm boundary only, internal boundary-spanning exploration spans the technological boundary only, and radical exploration spans both boundaries. Using this typology, we analyze the impact of knowledge generated by these different types of exploration on subsequent technological evolution. In our study of patenting activity in optical disk technology, we find that exploration that does not span organizational boundaries consistently generates lower impact on subsequent technological evolution. In addition, we find that the impact of exploration on subsequent technological evolution within the optical disk domain is highest when the exploration spans organizational boundaries but not technological boundaries. At the same time, we find that the impact of exploration on subsequent technological development beyond the optical disk domain is greatest when exploration spans both organizational and technological boundaries. Copyright © 2001 John Wiley & Sons, Ltd.     

Profitability, productivity and price recovery patterns in the U.S. telecommunications industry

We undertake a study where we examine changes in the profitability, productivity and price recovery of firms in the U.S. telecommunications industry over a sixteen-year period. We assess the performance of thirty-three major companies in the local-exchange sector over six time periods 1975, 1978, 1981, 1984, 1987 and 1990, using a performance analysis model which disaggregates the profitability measure into two components: productivity and price recovery. We demonstrate the computation of performance using this technique. Our study indicates that the opening up of markets has had a significant impact on different dimensions of performance in the telecommunications industry, also validating a number of theoretical assumptions about the impact that industry changes are expected to have on firms.     

Dominant designs and the survival of firms

The economic, population ecology and strategic perspectives on firm survival are here complemented by viewing the same phenomenon from the viewpoint of technology evolution as well. The hypothesis tested is that the competitive environment of an industry, and therefore the survival of firms in it, is substantially affected by the evolution of the technology on which it is based. Survival analysis is applied to data from six industries. The results show that by explicitly including technology as a dynamic and strategic variable our understanding of firms' survival potential and success can be enhanced.     

Software firm turnarounds in the 1990s: An analysis of reversing decline in a growing,dynamic industry

Investigations into management actions that reverse organizational decline have produced inconsistent findings. Prior studies have focused on the value of retrenchment actions versus strategic actions to engineer a performance turnaround. These studies, however, have generally not controlled for the cause of firm decline, overlooking a major theoretical contingency. Examining prepackaged software firms in the 1990s, we test the association of strategic and retrenchment actions in facilitating turnarounds in a munificent industry. The results show that measures of strategic actions—new product introductions, strategic alliances, and acquisitions—were positively associated with turnarounds. Conversely, measures of retrenchment actions—layoffs, asset reductions, and product withdrawals—were negatively associated with performance recovery. Our results suggest declining firms in munificent industries cannot retrench their way back to prosperity. Copyright © 2013 John Wiley & Sons, Ltd.     

Long run competition in the U.S. aluminum industry

A methodology for examining dynamic structure-performance relationships in a single industry is proposed and illustrated. Implications of long run competitive behavior for a simple simultaneous equations model of structure and performance are derived and tested using recently developed methods for the interpretation of economic time series. It is concluded that the structure and performance in the U.S. aluminum industry in the postwar period conform well with the hypothesis that the primary aluminum market was competitive in the long run.     

PROFITABILITY,TRANSACTIONAL ALIGNMENT,AND ORGANIZATIONAL MORTALITY IN THE U.S. TRUCKING INDUSTRY

The winds of creative destruction rarely blow more fiercely than in a newly deregulated environment. Managers simultaneously face a novel focus on operating efficiency and an onslaught of new competitors. What must managers do to enable their firms to survive in such an environment? What factors bear on firms’ survival? This paper presents an analysis of mortality of large motor carriers in the U.S. interstate for-hire trucking industry after deregulation. It examines this phenomenon through a multidisciplinary lens that encompasses organizational ecology, neoclassical economics, and transaction cost economics. The paper posits that carrier mortality is a function of both firm-level and industry-level attributes, which are drawn from both ecological and economic theories. While each of these theories separately informs motor carrier mortality, the inclusion of predictions derived from both disciplines in one model significantly increases explanatory power over either theory evaluated alone. The empirical analysis is among the first to show increased mortality when firms do not adhere to operating policies consistent with transaction cost minimization principles. In sum, managers are well advised to adopt a multidisciplinary approach to strategy to ensure their firms’ survival. © 1997 by John Wiley & Sons, Ltd.     

The effects of strategic and market complementarity on acquisition performance: evidence from the U.S. commercial banking industry, 1989–2001

Most traditional research on mergers and acquisitions tends to focus on the role of similarity in explaining acquisition performance. While scholars have recently begun to examine acquisition complementarity, there is still little evidence concerning how complementarity influences acquisition performance. Further, previous research has not drawn the connections between related contexts and the potential benefits from complementarity. In this article, we move the study of acquisition complementarity forward by investigating the effects of strategic and market complementarity on acquisition performance in the context of related horizontal acquisitions. We also propose that two key attributes of acquirers—strategic focus and out‐of‐market acquisition experience—will moderate this relationship. We investigate our research questions in the context of all 2,204 acquisitions made by publicly traded U.S. commercial banks during the 12‐year period from 1989 to 2001. Our findings are generally supportive, suggesting complementarity is an important antecedent of acquisition performance, and raising important issues on the nature of acquisition research in general. Copyright © 2009 John Wiley & Sons, Ltd.     

The limits of growth of the multidivisional firm: A case study of the U.S. oil industry from 1930-90

Some scholars (Chandler, 1977; Penrose, 1959) believe that firms grow by transferring inimitable marketing, production, and research skills from one line of business to another. Extending this view and emphasizing the role of the central office of a multidivisional firm to transfer administrative skills, Williamson (1975) argues that competition among business units within the firm mimics a competitive capital market and leads to an effcient allocation of resources. Coase (1937), however, argues that firm size is limited by the costs of organizing diverse transactions and Chandler (1991) claims that growth is constrained by the technical and marketing expertise of the top managers. The purpose of this paper is to demonstrate that the scope of the multidivisional firm is limited by the transferability of firm-specific skills and the efficiency of capital markets. Support comes from a case study of 19 oil companies over the 1930–90 period.     

Manufacturing and firm performance in technology-intensive industries: U.S. and Japanese DRAM experience

Firm-specific limits on capacity development rates (rates at which firms are able to increase output rate to design capacity) can affect firm performance in important ways, especially for firms involved in technological competition which introduce products relatively early. A simple model in which capacity development rates act in this way is developed and tested using data from semiconductor memory products (DRAMs). These results are used to estimate the ex post impact of increasing U.S. capacity development limits to the higher Japanese levels in the important 64 K DRAM generation.     

Interpenetration of organization and market : Japan's firm and market in comparison with the U.S.

Resource allocation mechanisms used in the market and within the firm are quite often a mixture of the pure market principle and the pure organization principle. Market principles penetrate into the firm's resource allocation and organization principles creep into the market allocation. Interpenetration occurs to remedy the failure of pure principles other in the market or in the organization. After presenting this new perspective, we analyze resource allocation mechanisms in Japan and the U.S. One conclusion is that interpenetration patterns are rather different between the two countries due to institutional, economic and societal differences. We also analyze the ways in which these differences affect Japanese and American corporate behavior in such areas as diversification strategy, corporate financing, and innovation and venture business activity.     

Evidence of directional price discrimination in the U.S. airline industry

This paper explores possible determinants that may affect an airline’s decision to charge passengers different roundtrip fares depending on trip origin, a case of directional price discrimination. Such fare differences cannot be the result of differences in cost, as the cost of flying a roundtrip passenger does not significantly differ depending on direction. It is argued that directional fare differences result from airlines recognizing that passenger price elasticities differ between route endpoints. A price discriminating airline will then charge a higher roundtrip fare at the endpoint where the passenger price elasticity of demand is comparatively lower. Evidence is found suggesting that airlines do use differences in income to price discriminate when setting roundtrip fares. Fares are found to be $0.18-$0.43 higher on average for each $1000 difference in average per capita income between origin and destination metro areas. This finding is sensible assuming that higher incomes reduce the price elasticity of demand for air travel, with richer passengers being less sensitive to the cost of travel.     

The value of knowledge spillovers in the U.S. semiconductor industry

This paper aims at quantifying the economic value of knowledge spillovers by exploring information contained in patent citations. We estimate a market valuation equation of the U.S. semiconductor firms during the 1980s and 1990s, and find an average value of $0.6 to 1.2 million “R&D-equivalent” dollars for knowledge spillovers embodied in one patent citation. For an average semiconductor firm, such an estimate implies that the total value of knowledge spillovers the firm received during the sample period can be as high as half of its actual total R&D expenditures in the same period. This provides a direct measure of the economic value of social returns or externalities of relevant technological innovations. We also find that the value of knowledge spillovers declines as the size of firm's patent portfolio increases, and that self citations are more valuable than external citations, indicating a significant amount of tacit knowledge or know-how spillovers that occur within the firm.