Abstract
This paper models how a firm’s capability relative to that of the other firm affects his location choice in the marketplace. Weaker firms strategically avoid head-to-head competition with stronger ones. When the capability gap is small, weaker firms randomly visit the core market of competitors (the “dodge” strategy). By doing so, they can trigger competitors to leave the demands of boundary markets in order to defend their core markets. When the capability gap is medium, they focus their resources on niches to fight for survival (the “niche” strategy). These strategies differ from those of stronger firms, which defend on core markets when the capability gap is small and build new markets when the capability gap becomes larger. Results show that those location choices can be understood using game theoretical models – the Hotelling model and the Colonel Blotto game. The paper’s results also explain the empirical observation that small businesses are more likely than large firms to make radical investments in R&D.
Highlights
Owing to their well-known brands, large advertising budgets, and strong management teams, big businesses like Amazon, IBM and Coca-Cola attract more consumers than other businesses. When competing with such giants in the market, how should weaker firms make their marketing strategies, in particular location choices, either geographically or conceptually? A common view, often serving as the basis for case studies, is that success can be copied, so firms can grow by following the similar operations and strategies of successful firms
Can copying or differentiating from stronger firms’ strategies help weaker firms break through market clutter? The literature still lacks theoretical verification. This paper studies this particular aspect of marketing strategy – firms’ location choices when their capabilities in the marketplace are different
This paper models how firms’ relative capability difference impacts the location choices in the market place
Summary
Owing to their well-known brands, large advertising budgets, and strong management teams, big businesses like Amazon, IBM and Coca-Cola attract more consumers than other businesses. This paper studies this particular aspect of marketing strategy – firms’ location choices when their capabilities in the marketplace are different. When the capability gap is medium, they focus their resources on niches to fight for survival (the ―niche‖ strategy) These strategies differ from those of stronger firms, which defend core markets when the capability gap is small and build new markets when the capability gap becomes larger. These location choices can be understood using game theoretical models – the Hotelling model and the Colonel Blotto game. In the study of the public candidate elections, scholars have found that weaker candidates move away from the political center to the left or right while the stronger candidates do the opposite, and that challengers tend to adopt more extreme positions than incumbents (Ansolabehere, Snyder, & Stewart, 2001)
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