Rival Firms Research Articles

Brand Building to Deter Entry and Its Impact on Brand Value

Brand valuation methods have traditionally focused on the value a brand generates via its ability to enhance demand and accordingly profitability. However, this paper explores how a brand can generate value for a firm through the ability to deter entry of new competitors. In this respect, we distinguish between a brand's direct effect on demand and its strategic effect on the behavior of rival firms. We investigate this within the context of the U.S. stacked chips category using a dynamic model that endogenizes brand building and entry decisions. We find that up to 63% of a brand's value can be attributed to its ability to deter entry. We find that an increase in industry-wide effectiveness of advertising can decrease the value of a firm's brand because, despite enabling more effective brand building, it can weaken the firm's ability to deter entry. Finally, we find that the threat of entry impacts the value of the firm and the value of the brand in qualitatively different ways; as the threat of entry increases, the value of the firm necessarily decreases, but the value of the brand can increase because the ability to use the brand to deter entry becomes more important.

Following or Running Away from the Market Leader? The Influences of Environmental Uncertainty and Market Leadership

Competitive dynamics theory suggests that rival firms imitate other competing firms with similar resources to maintain competitive parity while are likely to differentiate from the market leader to avoid its dangerous retaliation. According to neo‐institutional theory, in highly uncertain environments, rivals are likely to imitate the market leader because they assume it possesses superior market knowledge. Combining these two lines of argument, we argue that a rival's decision whether to follow or run away from the market leader depends on environmental uncertainty and market leadership, the latter expressing the extent to which the market leader owns a larger market share vis‐à‐vis the other rivals. The empirical analysis relies on data about the product line strategies of 66 mobile phone vendors in the 1994–2010 period. The results show that when environmental uncertainty is low, the relationship between a firm's market leadership and imitation by its rivals is negative, whereas in conditions of high environmental uncertainty, imitation of the market leader increases with its market leadership.

Integrating the Dark Side of Competition into Explanations of Business Failures: Evidence from a Developing Economy

In spite of the growing body of literature on the bright side of inter‐firm relationships, limited attention has been paid to the dark side of inter‐firm relationships. Using insights of serial entrepreneurs in a developing economy, we articulate the mechanisms through which adverse rumours and misinformation perpetrated by rivals' firms undermine small businesses and lead to decline and eventual collapse. We uncovered that the rumours were made more potent when combined with other factors such as prior history of poor and faulty products, sensitivity of industry and intense competition from rival firms in reducing the life chance of firms. Our study also uncovered that inter‐firm backstabbing leads former business owners to form a negative perception of former competitors and their organizations even after their business collapsed. We conclude by articulating the theoretical and practical implications.

Taxes versus standards under cross-ownership

This paper analyzes the effect of passive investment in rival firms on the setting of uniform taxes and uniform absolute emission standards by the government. When firms are equal and there is no cross-ownership, standards and taxes are equivalent and generate the same social welfare. However, under cross-ownership that result does not hold since cross-ownership reduces market competition, which has a different effect on taxes and standards. In general, we find that when cross-ownership is low social welfare is greater with a tax, and when it is high social welfare is greater with a standard.

The competitiveness of emerging country multinational enterprise

PurposeThis paper aims to conduct a theoretical enquiry into the questions as to whether emerging country multinationals’ competitiveness derives from country-specific advantage (CSA) or firm-specific advantages (FSA). The case of China is also examined.Design/methodology/approachCSAs and FSAs are examined both in theory and in the specific case of China as explicators of outward foreign direct investment from emerging countries.FindingsFSAs and CSAs are found to be imprecise explanatory mechanisms to explain the competitiveness of emerging country multinationals. The examination of imperfections in emerging markets and in global markets and the internalisation responses of firms in different contexts is found to be a superior explanation of the financial flows classified as “outward direct investment”.Originality/valueInternalisation theory requires a focus on mechanisms to convert home country attributes into competitive advantages and suggests that FSAs are context dependent, ephemeral and subject to negation by the competitive actions of rival firms.

Blocked But Not Tackled: Who Founds New Firms When Rivals Dissolve?

Research summary: This article examines the role of competitive shocks in creating opportunities for new firm foundings. I argue that the sudden dissolution of rival firms may release resources that create opportunities for firm formation, particularly among employees facing impediments to capturing value in their current organizations. Analyzing microdata from the legal services industry, I use unexpected deaths of solo-practicing attorneys as quasi-exogenous sources of rival dissolution. Results indicate that these shocks increase the odds of founding by about 30%, with stronger effects among attorneys with weaker social connections or higher competition for promotion. The article thus highlights the role that founders play in reallocating dissolved rivals' resources while demonstrating that founding may be an important outlet for “blocked” employees to capture value from opportunities. Managerial summary: This article finds that the shutdown and dissolution of a rival organization may spur employees to found new firms. As a consequence, managers may find it valuable to pay attention to employees' turnover intentions following the dissolution of a rival. Findings suggest that employees who are having trouble advancing in the firm may be the most likely to found a new organization when a rival dissolves, so managers may want to focus retention efforts on these individuals. To the extent that managers wish to capture customers, employees, and other resources that were formerly attached to a dissolved rival, managers may wish to be aware that they could be in competition with their own employees for these resources and opportunities. Copyright © 2017 John Wiley & Sons, Ltd.

Do financial analysts play a role in shaping the rival response of target firms? International evidence

Employing a sample of 4271 initial-industry acquisitions across 34 countries from 1989 to 2013, we show that the rival firms which are in the same industry as the target firms exhibit positive cumulative abnormal returns (CARs). In addition, those rivals with higher analyst coverage are associated with higher CARs. The results are robust to the natural experiment based on the exogenous decrease in analyst coverage (i.e., brokerage closure and merger). Careful comparisons of the results show dramatic differences between the United States (U.S.) and non-U.S. subsamples. We further show that a more transparent macro information environment can substitute for the role of financial analysts in determining the rival response. Overall, our findings support the Acquisition Probability Hypothesis.

EXTERNALIDADES DE RED Y SU INFLUENCIA EN LA PERCEPCIÓN DE MERCADO

Hoy en día los negocios están experimentando una nueva dinámica de expansión acompañada de una estrategia que conlleva un mayor posicionamiento ya sea de concepto, marca, producto o una combinación de éstos. Por medio de un modelo de localización y el uso de un juego en dos etapas, medimos ante diversos escenarios de competencia las externalidades generadas por los efectos de la presencia de una red de sucursales o puntos de venta, tanto para los consumidores como para las empresas, partiendo del hecho de que ambos buscan maximizar sus respectivas utilidades. Los resultados del modelo revelan que la cobertura del mercado sí tiene un efecto en variables como calidad percibida del producto, precio, y al mismo tiempo estas situaciones afectan el nivel de competencia ante la presencia de empresas rivales.

A game model of competition between a new good producer and a remanufacturer using negative advertising

In this paper we analyze the strategic interaction between a new good producer and a remanufacturer who use negative advertising on television (TV) to compete for a greater share of the market for a particular good. Government regulations limit the total amount of negative advertising time either firm can buy. The two rival firms choose how much negative advertising time to buy simultaneously. Our analysis of this duopolistic interaction leads to four results. First, we provide the normal form representation of the game between the new good producer and the remanufacturer. Second, we specify the best response functions of the two firms. Third, we determine the pure strategy Nash equilibrium of the game under study and point out that this equilibrium is unique. Finally, we ascertain the amount of negative advertising time the two firms would buy if they could come to a binding agreement to curtail this kind of advertising.

Emissions tax and second-mover advantage in clean technology R&D

This paper shows that under an emissions tax regime where firms have heterogenous capabilities in clean technology R&D, firms can acquire technology developed by rival firms at a lower cost than developing the technology in-house. In anticipation of such second-mover advantage in R&D, this creates an investment disincentive for technological innovators and resulted in lower social welfare relative to the case where firms’ technological competencies are homogenous and knowledge spillovers are equally shared. To resolve, the government can award a targeted subsidy, instead of a standard uniform subsidy, solely to the innovator to seed research.

A Game Model of Competition Between a New Good Producer and a Remanufacturer Using Negative Advertising

In this paper we analyze the strategic interaction between a new good producer and a remanufacturer who use negative advertising on television (TV) to compete for a greater share of the market of a particular good. Government regulations limit the total amount of negative advertising time either firm can buy. The two rival firms choose how much negative advertising time to buy simultaneously. Our analysis of this duopolistic interaction leads to four results. First, we provide the normal form representation of the game between the new good producer and the remanufacturer. Second, we specify the best response functions of the two firms. Third, we determine the pure strategy Nash equilibrium of the game under study and point out that this equilibrium is unique. Finally, we ascertain the amount of negative advertising time the two firms would buy if they could come to a binding agreement to curtail this kind of advertising.

Beyond Profits: The Rise of Dual-Purpose Organizations and Its Consequences for Disclosure

Recognizing the role and value of diverse stakeholders, firms pursing a beyond agenda are becoming increasingly common. This paper studies such hybrid entities - firms that value the profits they create as well as the surpluses generated for consumers - and details their implications for industry disclosure practices. The findings demonstrate that disclosure incentives are perturbed not just for the hybrid firms but also for traditional profit-maximizing rival firms, and information revealed can be both self-serving and altruistic. Accounting for production and information consequences, the paper then assesses whether an emphasis on consumer welfare that a hybrid entity brings can itself be a strategic ploy aimed at profit maximization, rather than merely a statement of goodwill.

Bundling and joint marketing by rival firms

AbstractWe study joint marketing by firms who price discriminate between consumers who patronize only one firm (single purchasers) and those who purchase from both (bundle purchasers). Firms either set the price of the bundle and then compete along side the bundle; or they determine a rebate that is applied to joint purchasers and then set prices. Even though the pricing structure in the joint marketing scheme is determined noncooperatively, the commitment to the joint marketing agreement allows firms to leverage their stand‐alone prices—leading to higher profits and lower consumer surplus in either case, compared to both uniform pricing and independent price discrimination without a joint marketing agreement. Nevertheless the two schemes differ dramatically, in that rebates increase joint purchasing, whereas bundle pricing diminishes bundle purchases.

The Impact of Competition on “Make-or-Buy” Decisions: Evidence from the Spanish Local TV Industry

This paper empirically investigates whether changes in product market competition affect firm boundaries. Exploiting regulation-induced shocks to entry barriers and differences in regulation enforcement across cities to obtain exogenous variation in competition, we establish a negative causal effect of competition (through reduced entry barriers and a larger number of rival firms) on vertical integration in the setting of the Spanish local television industry between 1995 and 2002. Data and the online appendix are available at https://doi.org/10.1287/mnsc.2016.2633 . This paper was accepted by Bruno Cassiman, business strategy.

Competitive earnings news and post-earnings announcement drift

Using a large sample covering the period 1996–2015, we find a positive relation between the return of the announced firm on the date of peer firms' announcements and industry-wide earnings news of peer firms. Our results imply that same-industry-peer earnings announcements play a role in the analyst forecast-based drift, and are consistent with the notion of intra-industry information transfers. Additional analyses show that economic conditions and the relative size of the rival firms can affect the nature and magnitude of the link between announced firm's return surrounding the date of the rival firm's announcements and the rival firms' industry-wide component of earnings surprises. We also document evidence that is more consistent with analyst forecast-based drift reflecting investors exhibiting limited attention behavior as opposed to investors' conservatism bias. Our results are robust across different estimations and clustering procedures.

The complexity of co-opetitive networks

PurposeMany firms engage in co-opetitive projects during which they have simultaneously competitive and collaborative relationships with many rivals in a complex network. A co-opetitive network offers them access to a large volume of resources and knowledge, for example, to support new markets and/or territories. So, does the network grow with the scope of the co-opetition project? The paper aims to discuss this issue.Design/methodology/approachAn empirical study of 106 French boating intermediate-sized enterprises (ETIs) and small and medium enterprises provides a descriptive and explanatory analysis of co-opetitive networks.FindingsThe results support this definition of a complex co-opetitive network only when the objectives of a firm are part of the geographical expansion of its activities. In contrast, these relations remain simple (dyadic) when a firm favours a strategy of diversifying its activities while maintaining its unique local geographical market.Research limitations/implicationsFirst, the work is based on a quantitative methodology, so is static. It would be interesting to analyze the process of the building of co-opetitive relationships and opportunism between rival firms, for example, through a qualitative study. Second, this work focusses on boating companies in France. It may be appropriate to consider the sanctions placed on the opportunism of foreign firms in co-opetition. Third, future work could increase understanding, not only of the nature of reprisals inflicted on individualistic co-opetitors, but also on the structure, objectives and results of these reprisals.Originality/valueThe study deepens our knowledge of the definition, composition and determinants of co-opetitive networks.

Data Privacy: Effects on Customer and Firm Performance

Although marketers increasingly rely on customer data, firms have little insight into the ramifications of such data use and do not know how to prevent negative effects. Data management efforts may heighten customers’ vulnerability worries or create real vulnerability. Using a conceptual framework grounded in gossip theory, the authors link customer vulnerability to negative performance effects. Three studies show that transparency and control in firms’ data management practices can suppress the negative effects of customer data vulnerability. Experimental manipulations reveal that mere access to personal data inflates feelings of violation and reduces trust. An event study of data security breaches affecting 414 public companies also confirms negative effects, as well as spillover vulnerabilities from rival firms’ breaches, on firm performance. Severity of the breach hurts the focal firm but helps the rival firm, which provides some insight into mixed findings in prior research. Finally, a field study with actual customers of 15 companies across three industries demonstrates consistent effects across four types of customer data vulnerability and confirms that violation and trust mediate the effects of data vulnerabilities on outcomes.

Minority Share Acquisitions and Collusion: Evidence from the Introduction of National Leniency Programs

There is a growing concern that minority shareholding (MS) in rival firms may facilitate collusion. To examine this concern, we exploit the fact that leniency programs (LPs) are generally recognized as a shock that destabilizes collusive agreements and study the effect that the introduction of an LP has on horizontal MS acquisitions. Using data from 63 countries over the period 1990-2013, we find a large increase in horizontal MS acquisitions in the year in which an LP is introduced, especially in large rivals. The effect is present however only in countries with an effective antitrust enforcement and low levels of corruption and only when the acquisitions involve stakes of 10% - 20%. These results suggest that MS acquisitions may stabilize collusive agreements that were destabilized by the introduction of the LP.

Competitive Corporate Social Responsibility

Fifty years after publication of Milton Friedman's seminal article in the NY Times Magazine, the question of corporate social responsibility (CSR) remains an important topical issue. We provide a role for CSR in a fully rational framework even when shareholders care only about profit maximization. CSR is a strategic commitment to emphasize either consumer or employee interests in a multi-stage product market game against rival firms. We find that low cost firms in concentrated industries engage in higher levels of CSR and have higher profits. Empirical tests of the main hypotheses are confirmatory: low cost firms use more CSR; market to book increases in CSR and a dynamic test of firms migrating to less concentrated industries exhibit reductions in CSR.

Do Proprietary Costs Deter Insider Trading?

Insider trading conveys insiders’ private information to outsiders. This private information potentially benefits rival firms, which may reduce the competitive advantage of the insiders’ firms. Using multiple approaches to identify proprietary information risk, we find proprietary costs are negatively associated with insiders’ purchases, especially when insider trades are more likely to be informative to rivals. Consistent with proprietary information risk increasing the costs of insider purchases and, hence, the required benefits to trade, insiders earn significantly higher abnormal profits when proprietary costs are higher. Exploiting settings with exogenous and event-driven variation in proprietary costs, we find insiders significantly reduce their purchases when noncompete agreement enforceability is high and before new product launches. Finally, firms with higher proprietary costs are more likely to impose trading window-based insider trading restrictions. Our findings indicate insiders and firms are aware of potential proprietary costs when insiders trade on private information, and they respond accordingly.