To be different,or to be the same? It’s a question (and theory) of strategic balance

This paper addresses the performance consequences of firm‐level strategic similarity. Past research observed that firms face pressures to be different and to be the same. By differentiating, firms reduce competition. By conforming, firms demonstrate their legitimacy. Both reduced competition and legitimacy improve performance. This paper begins building a theory of strategic balance by synthesizing the differentiation and conformity perspectives. The theory directs attention to intermediate levels of strategic similarity where firms balance the pressures of competition and legitimation. Empirical support for the theory is found in a longitudinal study of commercial banks. Several suggestions for developing a theory of strategic balance conclude the paper. The theory’s major implication is that firms should be as different as legitimately possible. Copyright © 1999 John Wiley & Sons, Ltd.     

Preemptive mergers under spatial competition

Mergers for market power generally benefit outsider firms more than participating firms. Hence, outsiders should welcome such mergers between their competitors but, frequently, this is not the case. Under spatial competition some outsiders gain more than the participating firms but others might benefit less. Thus, if the number of admissible mergers is limited, firms may decide to merge to preempt rival mergers. This paper studies the incentives for preemptive merger by firms engaged in spatial competition.     

The impact of product market competition on corporate environmental responsibility

Although the mainstream of current thinking in the business literature recognizes that firms should invest in environmental responsibility, the theory on how product market competition affects firms’ environmental responsibility remains undeveloped. Using cost-benefit analysis, we hypothesize that the relationship between product market competition (i.e., differential industry-level competition and heterogeneous firm-level market power) and corporate environmental responsibility (CER) will be curvilinear. We find support for this hypothesis through an empirical test on a panel of 792 listed manufacturing companies from 2006 to 2008 in China. The results show that (1) either too much or too little industrial competition and (2) either too much or too little firm-level market power lead to lower environmental responsibility. Our results reveal that CER is strategically chosen and related to competitive situations.     

Competition under capacitated dynamic lot-sizing with capacity acquisition

Lot-sizing and capacity planning are important supply chain decisions, and competition and cooperation affect the performance of these decisions. In this paper, we look into the dynamic lot-sizing and resource competition problem of an industry consisting of multiple firms. A capacity competition model combining the complexity of time-varying demand with cost functions and economies of scale arising from dynamic lot-sizing costs is developed. Each firm can replenish inventory at the beginning of each period in a finite planning horizon. Fixed as well as variable production costs incur for each production setup, along with inventory carrying costs. The individual production lots of each firm are limited by a constant capacity restriction, which is purchased up front for the planning horizon. The capacity can be purchased from a spot market, and the capacity acquisition cost fluctuates with the total capacity demand of all the competing firms. We solve the competition model and establish the existence of a capacity equilibrium over the firms and the associated optimal dynamic lot-sizing plan for each firm under mild conditions.     

Market Power in Chinese Taipei: Laws, Policies and Treatments

The experience of Chinese Taipei shows that opening up a previously protected market to new entrants can be a more effective and reliable way to enhance competition than regulating the behavior of dominant or monopolistic firms. Moreover, when opening up the market, the liberalizing measures adopted by government should be market-structure-neutral. That is, it should not try to dictate the direction and results of market competition. A more pressure-resistant mechanism should be designed to deal with market power, taking the form of a regime that is cross-sector, independent and collective in its decision-making, such as has been the case with Chinese Taipei's Fair Trade Commission.     

Do managerial ties in China always produce value? Competition,uncertainty, and domestic vs. foreign firms

While most advocate that foreign firms should utilize managerial ties to conduct business in China, recent literature cautions that such ties may offer only conditional value. This study examines three sources of heterogeneity that may condition the value of ties: firm ownership (foreign vs. domestic), competition, and structural uncertainty. Results from a survey of 280 firms in China indicate that though foreign and domestic firms utilize ties at a similar level, their performance gains from tie utilization differ. Managerial ties have a monotonic, positive effect on performance for domestic firms, whereas the effect is curvilinear (i.e., inverted U-shaped) for foreign firms. Therefore, compared with domestic firms, foreign firms have a competitive disadvantage from tie utilization. Furthermore, managerial ties are less effective for fostering performance when competition becomes more intense. However, ties lead to higher levels of firm performance when structural uncertainty increases. Overall, these results support the contingency view of managerial ties and caution companies about the unconditional use of ties as the market becomes more heterogeneous. Copyright © 2008 John Wiley & Sons, Ltd.     

The influence of competition from informal firms on new product development

Research summary : Existing research describes a broad range of determinants of new product development (NPD), a fundamental competitive activity of firms. A considerable share of this work has occurred in the context of developed economies, raising a concern that some important determinants may remain unexamined. We suggest that one such determinant is competition from informal (unregistered) firms. Drawing from the attention‐based view, we investigate the effects of informal competition on NPD in a large sample of firms located across Eastern Europe and Central Asia. We examine not only the direct effect but also how this effect is moderated by characteristics of the competitive and institutional context. Managerial summary : The purpose of this research is to examine the relationship between competition from informal (unregistered) firms and new product development (NPD) by formal firms. We argue that NPD is an effective response to differentiate from informal firms, and our analyses of over 9,000 firms located in emerging economies across Eastern Europe and Central Asia indicate that NPD activities are more likely in formal firms who rate informal competition as a greater obstacle. The strength of this direct relationship depends on aspects of the competitive and institutional environment: it is weakened when levels of competition from other formal firms are higher, when alternative responses such as corruption are more available, and when managers are more optimistic about the regulatory environment. Copyright © 2016 John Wiley & Sons, Ltd.     

私有协议与标准化的知识产权政策

在对电信市场的网络效果、转换成本以及标准经济性质分析的基础上,本文探讨厂商在私有协议、产业标准化和机构标准化竞争中采取的知识产权政策。在ICT市场里,市场选择决定胜出的私有协议,厂商采取的基本策略是先松后紧的知识产权政策。产业联盟的厂商在产业标准化上既竞争又合作,他们都试图运用有效的知识产权政策和市场策略赢得标准谈判更大的筹码。在机构标准化竞赛中,厂商会采取适度温和的知识产权渗透政策和“脚踏两只船”的风险分散策略。中国厂商相应采取科学的知识产权政策对于赢得私有协议和标准化起着关键性作用。     

What types of switching costs to create under behavior-based price discrimination?

We study firms' incentives to create switching costs using a four-period model consisting of two consecutive price-competing stages intervened by options to create switching costs early (before price competition) and late (during price competition). Acknowledging that many real/social switching costs need to be created early while many contractual/pecuniary switching costs are set up late during the competition, we show that firms are better off minimizing real/social switching costs while maximizing contractual/pecuniary switching costs. The results highlight the importance of timing of creation that is embedded in different types of switching costs. We also show that switching costs can actually benefit consumers when firms practice behavior-based price discrimination because consumers can enjoy benefits of deep price discounts without the hassle of actually switching. Therefore, an observed lack of consumer switching should not be immediately interpreted as lack of competition in markets where both switching costs and behavior-based pricing exist.     

Foreign Direct Investment,Imports and Innovations in the Service Industry

The paper analyses for the first time empirically the impact of foreign competition due to inward foreign direct investment and imports on the innovation activities using data of German service firms. Based on the hypothesis that foreign competition has a disciplining effect on domestic markets derived from the manufacturing sector, a positive impact can be expected on innovation in the service sector, while other theoretical considerations do not absolutely support this optimistic view. In the empirical analysis, variants of two probit models are estimated for a sample of 2,019 service firms to explain their product and process innovation activities. The results show that both foreign direct investment and imports have highly significant positive effects on product and process innovations. Vice versa, the export and foreign production activities of domestic firms support innovations, too.     

Asymmetries in cost structures and incentives towards price competition

This paper provides some theoretical grounds to relate asymmetries in cost structures and incentives towards price competition. Typically low cost firms favor price competition whereas the reserve is true for high cost firms. Increased price competition will tend to diminish price-cost margins for all firms but the low cost firms may increase their total profits through an enlarged market share. This analysis depends on two relevant parameters: the way the overall market will react to increased price competition and interfirm cross elasticities. This is proved using comparative statics at the Nash equilibrium of an oligopolistic model.     

Investment sharing in broadband networks

This paper presents a model of competition between an incumbent firm and an Other Licensed Operator (OLO) in the broadband market, where the incumbent has an investment option to build a Next Generation network (NGN) and it can do so by making an investment sharing agreement with the OLO, or alone. Two different kinds of investment sharing contractual forms are analyzed, a basic investment sharing, where no side-payment is given for the use of the NGN between co-investors, and joint-venture, where a side-payment is set by the co-investing firms. Results show that investment sharing can potentially be beneficial in terms of competition and investments, but the number of firms involved matters and so does the choice of the NGN access price, for insiders and outsiders of the agreement. Even when the presence of firms outside of the agreement force insiders to compete more fiercely, there might be a concern with the potential exclusion of the outsiders from the NGN.     

The dynamic provision of product diversity under duopoly

This paper builds a dynamic duopoly model to examine the provision of new varieties over time. Consumers experience temporary satiation, and hence higher consumption of the current variety lowers demand for future varieties. The equilibrium can be characterized by a combination of monopolistic pricing and nearly zero profits (competitive timing). In particular, if the cost of producing a new variety is not too low then firms tend to avoid head-to-head competition and set the short-run profit maximizing price. However, firms tend to introduce new varieties as soon as demand has grown sufficiently to cover costs. From a second best perspective, the equilibrium may exhibit excessive product diversity. However, if firms coordinate their frequency of new product introductions, then consumers are likely to be harmed. It is also shown that equilibrium prices are moderated by two factors. First, consumers’ option value of waiting reduces their willingness to pay. Second, competition reduces firms’ incentives to engage in intertemporal price discrimination.     

Effect of agglomeration on firms’ research and development investment: a U-shaped relationship

Extant research on how agglomeration affects firms’ R&D investment reveals conflicting views. Some studies suggest that, owing to free riding arising from knowledge spillovers, agglomeration reduces firms’ R&D investment, whereas others find that it creates additional incentives for innovation through intensifying local competition, thereby increasing firms’ R&D investment. Thus, this study attempts to reconcile these two conflicting views. We propose a U-shaped relationship between agglomeration and firms’ R&D investment; that is, when the extent of agglomeration is low, knowledge spillover effects are important, while local competition is negligible. The free riding effects dominate local competition effects. Therefore, firms’ R&D investment decreases with the extent of agglomeration at a decreasing rate. By contrast, when the extent of agglomeration is high, local competition becomes the dominant force. Consequently, firms’ R&D investment increases with the extent of agglomeration at an increasing rate. Using data from 299,256 manufacturing firms in China, we find that firms’ R&D investment first decreases with the extent of agglomeration to reach a minimum, then increases as the extent of agglomeration continues to rise. These results indicate that there is a robust U-shaped relationship between agglomeration and firms’ R&D investment.     

The capital structure implications of pursuing a strategy of innovation

In this paper, we argue that consideration of firm strategy can help illuminate the choices managers make between debt and equity financing. Within an industry, the form of competition that each firm chooses will determine the strategic value to the firm of maintaining financial slack. Our empirical analysis yields strong support for the proposition that financial slack should be a particularly critical strategic imperative for firms pursuing a competitive strategy premised on innovation. We also demonstrate that firms pursuing such a strategy that fail to recognize the value of financial slack are likely to perform poorly. Copyright © 2003 John Wiley & Sons, Ltd.     

PRODUCT MARKET COMPETITION AND AGENCY COSTS*

We model the effects of competition on managerial efficiency and isolate the agency effect of competition, present only in firms subject to agency costs, from the direct pressure effect of competition, which is present in all firms. Using a unique set of Canadian data that surveys both firms and their employees, we then evaluate the empirical significance of these two effects. We find that competition has a significant direct pressure effect as well as a significant agency effect. Both effects increase the importance firms place on quality improvements and cost reductions as well as on contractual incentives and employee effort.     

Technological evolution and competitive response

This paper focuses and extends some emerging views on technological evolution and competition. First, that over the evolution of many product-market segments there is a generalizable pattern, a shift from the investment characteristics of product technology to those of process technology as the primary focus of competition. Eventually, market price falls below production costs, not because firms face U-shaped cost curves, but because of shifts in demand to the innovative form of the product. To this framework is added a hypothesis on the evolving risk structure of rival investments. The interaction of required and realized returns then provides a stopping rule for technologically-driven competition which is different from the static case. Because technological change within a segment is non-controllable but predictable the production functions and organization structures of participating firms must change in generalizable ways which can be used to predict industry structure. For the competing organization, these changes require particular kinds of decisions which are particularly suited to the level of the organization's strategic management.     

Vertical equilibrium in a competitive input market

Imperfect competition, imperfect information, disequilibrium, and rationing all induce vertical integration in relatively straightforward ways. But can vertical integration arise when firms are competitive and markets clear rapidly? This paper demonstrates that a vertical equilibrium can be generated when the intermediate market is subject to external fluctuations and when there are economies of coordination for firms which avoid the market via integration. The vertical equilibrium is one in which some firms will be integrated while some will not, despite the fact that all firms are identical. Thus, one need not conclude that differential degrees of integration within industries are the result of differing circumstances among firms.     

Bertrand equilibrium with differentiated products considering fixed costs: Korean price regulation in the mobile telephone industry

In some industries such as telecommunications and electricity, the fixed costs are so high that competition is not sustainable without considering the fixed cost in pricing. The sustainability of competition is as important as enhancing competition when an industry is in the transitional period from being a monopoly owned or managed by the government to a competitive market structure driven by the market. A price competition model with asymmetric firms and product differentiation is considered in which firms compete with a normal profit constraint. The constraint is related to the sustainability of competition and can be realized through price regulation. With this constraint, firms gain only normal profit in equilibrium despite the asymmetry, and consumer surplus is maximized. The equilibrium is meaningful in defining the industry performance intended through the regulation. Moreover, the price regulation of the Korean mobile telephone market is considered to discuss any implications of this equilibrium.     

Risk Aversion and Technology Portfolios

This paper analyzes the choice of a technology portfolio by risk-averse firms. Two technologies with random marginal costs are available to produce a homogeneous good. If the risks that are associated with the technologies are correlated, then the firms might invest in a technology with a negative expected return or, conversely, might not invest in a technology with a positive expected return. If the technology with the lower expected cost is riskier than the other technology, then this “low-cost” technology will be eliminated from the firm’s portfolio if the risks are highly correlated. With imperfect competition, the portfolios of firms are different, and the difference in risk tolerance can explain the full specialization of the industry: The less risk-averse firms use the low-cost technology, and the more risk-averse firms use the less risky, higher-cost technology.