Abstract
This study examines the effect of earnings pressure on firms' strategic behavior in output competition. We argue that earnings pressure will lead firms with strong market positions to reduce their output in markets in order to generate higher current profits to meet analyst forecasts. The firm will choose to do so when the competitive context, such as market share dominance or market concentration, allow the exercise of short-term market power to raise current profit, even at the risk of encouraging future entry and rival expansion. Using data from the US electricity industry, our findings confirm these hypotheses and show that the effects of earnings pressure on the firm's strategic competitive behavior depends on the competitive context.
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