Strategic Behavior Of Firms Research Articles

Competition versus collusion: The impact of consumer inertia

AbstractA model of dynamic price competition is analyzed to assess how consumer inertia may impact the ability of firms to sustain high prices. Three main consequences are identified: maintaining high prices does not require punishment strategies when firms are sufficiently myopic; for sufficiently high levels of inertia, high prices can be sustained at all discount factors; and the ability to maintain high prices may depend non‐monotonically on the level of the discount factor. Our findings offer implications for strategic firm behavior and public policy. For example, measures aiming to reduce the degree of consumer inertia are unambiguously effective in traditional markets, but may facilitate collusion in network industries.

R&D Spillover Effects on the Strategic Behavior of Large International Firms during the World Financial Crisis

The aim of this study is to investigate the relationship between competition and innovation through the knowledge spillover effect. In particular, we investigate whether R&D competition is sensitive to economic shock. To this end, we consider a period of time related also to the 2008 financial crisis. We implement an empirical analysis of 879 worldwide R&D-intensive firms. In order to measure technological proximity, we use two approaches: one based on Jaffe industry weight matrix, relative to patents distributed across technology classes; one based on trade intensity between sectors using input–output matrix data. The empirical results show a positive effect of R&D externalities on competitive interactions before the beginning of crisis and a negative one after it. These findings are robust with respect to the procedure employed in the estimation method.

The Effects of Hedge Fund Interventions on Strategic Firm Behavior

We examine the impact of hedge fund interventions on target firms’ strategic behavior, specifically their voluntary disclosure and earnings management strategies. We find a decrease in both the likelihood and the frequency of management earnings forecasts conveying bad news and an increase in the level of real earnings management following interventions by hedge fund activists. Additional evidence suggests that managers substitute between voluntary disclosure and earnings management strategies in resisting hedge fund attacks. We also find that withholding of bad news is more pronounced when hedge fund activists pose greater threats to the target firm’s management and when the intervention lasts for a relatively short time period. Our results are consistent with firms behaving strategically in response to heightened career/reputation concerns and endangered corporate control arising from hedge fund activism. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2816 . This paper was accepted by Suraj Srinivasan, accounting.

Superstitious Heuristic: A Means to Avoid Uncertainty in Strategic Decision-Making

This conceptual piece highlights a universal yet understudied means that firms use to avoid uncertainty in strategic decision- making ¨C superstitious heuristic, which we define as a decision strategy based on superstitious thinking. We propose that decision makers' superstitious thinking and the needs to satisfice and control under uncertainty interact to increase the use of superstitious heuristics which hurts firm performance. We further apply the framework to the country level to explain why the use of superstitious heuristics is more prevalent in certain countries than others. This paper contributes to the behavioral theory of the firm by identifying a neglected approach that firms use to avoid uncertainty, and thereby adding a new angle to explain and predict firm strategic behavior. It also offers managerial implications to strategic management and corporate governance.

Adoption incentives and environmental policy timing under asymmetric information and strategic firm behaviour

We consider the incentives of a single firm to invest in a cleaner technology under emission quotas and emission taxation. We assume asymmetric information about the firm's cost of employing the new technology. Policy is set either before the firm invests (commitment) or after (time consistency). Contrary to conventional wisdom, we find that with commitment (time consistency), quotas give higher (lower) investment incentives than taxes. With quotas (taxes), commitment generally leads to higher (lower) welfare than time consistency. Under commitment with quadratic abatement costs and environmental damages, a modified Weitzman rule applies and quotas usually lead to higher welfare than taxes.

Minority entrepreneurship in twenty-first century America

Prior to the 1970s, minority-owned small businesses were small in size and scope, and common in only a few industry niches. Business owners were severely capital-constrained, lacking in higher education, and training in skilled occupations. The median owner today, in contrast, is college educated, access to financing has expanded, and opportunities to serve corporate and public-sector clients are commonplace. Nearly 40% of all new firms created nationwide in 2015 were minority owned. Changing attitudes in mainstream society reduced traditional barriers. True equality of opportunity among small minority- and white-owned firms of similar size and scope has nonetheless not been achieved. This issue of Small Business Economics examines lingering barriers impeding the development of a more vibrant minority business community. Focusing on access to financing and government procurement markets, articles in this issue offer explicit analyses of enduring barriers, along with explanations of adoptive strategic firm behavior appropriate for reducing those barriers.

The Acquisitive Nature of Extraverted CEOs

This study examines how extraversion, a personality trait that signifies more or less positive affect, assertive behavior, decisive thinking, and desires for social engagement, influences chief executive officers’ (CEOs’) decisions and the ensuing strategic behavior of firms. Using a novel linguistic technique to assess personality from unscripted text spoken by 2,381 CEOs of S&P 1500 firms over ten years, we show that CEOs’ extraversion influences the merger and acquisition (M&A) behavior of firms above and beyond other well-established personality traits. We find that extraverted CEOs are more likely to engage in acquisitions, and to conduct larger ones, than other CEOs and that these effects are partially explained by their higher representation on boards of other firms. Moreover, we find that the acquisitive nature of extraverted CEOs reveals itself particularly in so-called “weaker” situations, in which CEOs enjoy considerable discretion to behave in ways akin to their personality traits. Subsequent analyses show that extraverted CEOs are also more likely than other CEOs to succeed in M&As, as reflected by stronger abnormal returns following acquisition announcements.

Language in globalised interactive business: adaptation vs. standardisation

We investigate language-related choices made in online firms characterised as 'interactive' and having multiple and varying audiences, in both consumer and business marketing environments. Online language choices and their relatedness with firm strategic and tactical behaviour have little received scrutiny. Using survey data, we investigate the role language plays in online firms. We scrutinise whether or not firms significantly adapt to their targeted markets through language and how such adaptive or standardising behaviour relates with firm internationalisation level, and furthermore, if this behaviour relates with how firms interact with their environment. When studying how firms interact with their environment, we use a customer viewpoint - including consumer and business customer - and business network viewpoint. 'Internationalisation' we study through expanding into new geographic markets and language areas. Some measured topics are factors in firm online language strategy.

Language in globalised interactive business: adaptation vs. standardisation

We investigate language-related choices made in online firms characterised as 'interactive' and having multiple and varying audiences, in both consumer and business marketing environments. Online language choices and their relatedness with firm strategic and tactical behaviour have little received scrutiny. Using survey data, we investigate the role language plays in online firms. We scrutinise whether or not firms significantly adapt to their targeted markets through language and how such adaptive or standardising behaviour relates with firm internationalisation level, and furthermore, if this behaviour relates with how firms interact with their environment. When studying how firms interact with their environment, we use a customer viewpoint - including consumer and business customer - and business network viewpoint. 'Internationalisation' we study through expanding into new geographic markets and language areas. Some measured topics are factors in firm online language strategy.

Short-Term Forward and Spot Prices in Organized Wholesale Electricity Markets

In modern organized wholesale electricity markets, power is sold competitively in a two-settlement auction comprised of a short-term forward (or day-ahead) market with elastic demand, and a spot (or real-time) imbalance market characterized by an inelastic residual demand curve - a construct that the literature on the subject tends to ignore. To understand the strategic behavior of firms looking maximize joint pro fits over both markets, I construct a two-settlement model of electricity prices in which firms compete to meet demand from consumers, first in quantities, then in prices. I show that the ensuing forward premium depends on the costliness of spot commitment relative to firms' ability to exercise market power by setting quantities in the forward market. Using hourly data from the California Independent System Operator, I find that the model helps explain price formation in the California market, and that the forward market solutions are close to the Cournot outcome due to the relative insensitivity of the spot equilibrium price to individual firm's forward commitment decisions.

The Strategic Behavior of Firms with Debt

We empirically study the strategic behavior of levered firms in competitive and noncompetitive environments. We find that regulation induces firms to increase leverage, and this reduces their ability to compete when deregulation occurs. Large and small levered firms adopt different strategies upon deregulation. Whereas more levered small firms charge higher prices to increase margins at the expense of market shares, highly levered large firms prey on their rivals by increasing output and reducing prices to increase their market shares. The difference in their behavior is due to differences in their probability of bankruptcy and their financing constraints.

Negative uncertainty sensitivity of investment and market structure

This paper examines how industry competition changes the sensitivity of investment to uncertainty using Japanese firm data. A switching regression model is employed to test the predictions of the real options theory regarding the uncertainty–investment relationship under different industry competition attributes. We find that the negative uncertainty sensitivity of investment is increased by industry concentration, but decreased by market share. The latter finding supports the view of strategic investment behavior of rival firms under uncertainty, rather than the erosion of option values by competition.

Preemptive Mergers in a Vertically Differentiated Unionized Oligopoly

In the context of an international unionized oligopoly with vertical differentiation, the pattern of mergers is investigated. We show that mergers between firms producing the same-quality good lead wages to the reservation level, as well as maximize industry profits. However, it turns out that most of the market structure equilibria are shaped by mergers between producers of differentiated and homogeneous goods. This is so because mergers increase the market share of participating firms at the expense of that of the outsiders, leading to a scenario of preemptive mergers, where the main driving force can be to preempt rival mergers. Finally, it is shown that if three-firm mergers are not allowed, the strategic behavior of firms is eliminated, mergers between same-quality producers occur and social welfare is maximized.

Entry deterrence and hidden competition

This paper studies strategic investment behavior of firms facing an uncertain demand in a duopoly setting. Firms choose both investment timing and the capacity level while facing additional uncertainty about market participants, which is introduced via the concept of hidden competition. We focus on the analysis of possible strategies of the market leader in terms of its capacity choice and on the influence of hidden competition on these strategies.We show that due to hidden competition the follower is more eager to invest. As a result, an entry deterrence strategy of the leader becomes more costly, and it can only be implemented for smaller market size, leaving additional room for entry accommodation. The leader has incentives to prevent entry of the hidden competitor stimulating simultaneous investment if the hidden firm has a large capacity, and has more incentives to apply entry deterrence in the complementary case of a small capacity of the hidden player. In the first case overinvestment aimed to deter the follower׳s entry does not occur for a wide range of parameters values.

Exploring the linkage between business model (&) innovation and the strategy of the firm

Research on the phenomenon of business model (&) innovation is taking place in related perspectives. Next to innovation and entrepreneurship literature, theories of firm strategy closely relate to the ongoing conceptualization of the business model concept. We first review in this article the linkage between the business model, innovating the business model and firm strategy in extant literature. We focus specifically on the explanatory power of the business model concept to develop insights for strategic firm behaviour, and we explore the role of business model innovation as analytic perspective for identifying sources of firm performance. Building on this conceptual overview, we subsequently present how the articles in this special issue contribute in the light of strategy theory to the understanding of the phenomenon of business model innovation. Finally, we develop some themes for future research on the topic.

Loyal customer bases as innovation disincentives for duopolistic firms using strategic signaling and Bayesian analysis

In this paper we model the strategic behavior of firms competing in duopolistic environments with a loyal customer base and formalize their decision to delay the introduction of the most technologically developed product available. The proposed model extends and complements the partial approaches studied in the economic, management and operations research literatures. The former emphasizes the role of the strategic knowledge spillovers that may take place among competing firms because of their incentives to introduce technologically superior products while assuming the acceptance of such products by customers as given. The second defines its technology acceptance model based on the demand side of the economic system without considering the resulting strategic interactions that arise among the firms. The latter addresses the effect that signals about a new technology have on the information acquisition behavior of decision makers (DMs) but does not consider the capacity of DMs to account for several product characteristics and their interaction when acquiring information. Using a duopolistic innovation game model we illustrate how the existence of loyal customer bases allows for higher expected payoffs when generating monopolized markets but decreases the incentives of firms to introduce the most technologically developed product available. The signaling equilibria of the game are determined by demand-based factors and the incentives of customers to acquire information on the existing products in the market. Among the main implications of our model is also the fact that the availability of decision support systems that can be used by DMs through their information acquisition processes would improve the quality of the technology being introduced in the market and increase the firms’ probability of success.

Endogenous Consumerss Preferences as Drivers of Corporate Social Responsibility: Redefining Firmms Strategy

In this paper I construct a model where consumers’ preferences become endogenous to the firm strategic behavior. Particularly, I pay attention to the case where negative externalities in production create opportunities for firms to develop a Corporate Social Responsible strategic move, as a response of more sophisticated consumers with higher willingness to pay for a combined intrinsic and extrinsic utility process. I demonstrate that CSR behavior is a technological driven process, mainly initiated by consumers revealing strong preferences for CSR type of product, and firms deriving spillover learning effects through a Producer Benefit Experience. Firms can “do well by doing good” strategic planning that directly incorporates consumers’ preferences for an extrinsically differentiated product.

Firm Resources, Core Competencies and Sustainable Competitive Advantage: An Integrative Theoretical Framework

A number of studies based on the Resource Based View (RBV) consider resources as the only sources of gaining a source of a firm’s sustainable competitive advantage. According to the RBV approach, there are qualities that resources must possess in order for them to realize sustainable competitive advantage for a firm. The resources must be valuable, rare, inimitable and immobile across firms. Since resources are more often common than rare, more homogenous than heterogeneous and more mobile than immobile, then firms have to combine the resources in order to develop rare and difficult to imitate processes that will act as a source of sustainable competitive advantage. In an industry where resources are common and mobile, a firm therefore needs to build competencies in order to convert these common and mobile resources into processes that are rare and immobile to create a source of sustainable competitive advantage for the firm. A problem therefore exists for firms in a homogenous industry where resources are shared and are neither rare nor heterogeneous across firms in the industry to develop sources of sustainable competitive advantage. In order for these firms to develop sources of competitive advantage with the resources available to them, they would need to develop core competencies to turn the non rare homogenous resources into rare and heterogeneous processes that competitors cannot imitate. The development of these competencies is the product of organizational cultures and values formed over time which can be explained by institutional theory. Further, a firm may not own the resources they need to form a source of sustainable competitive advantage. These resources may be owned by other firms not controlled by the firm in need of these resources which is a premise of the institutional theory. While this is acknowledged from the existing literature, there is also lack of an integrated theoretical model to demonstrate how diverse theories explaining firm strategic behaviour may be utilized to enable firms build sustainable competitive advantage. This paper proposes an integrated theoretical model for linking firm resources with core competencies and sustainable competitive advantage while providing for the role of the firm’s external environment. The proposed model integrates the postulates of the RBV, RDT, Institutional Theory and Porter’s five forces Model. The emerging theoretical propositions and implications for future research are discussed.

Environmental Upgrading of Developing Country Firms in Global Value Chains

AbstractWhile the strategic management literature on corporate social responsibility (CSR) is abundant, it tends to consider the context of developed countries, with a focus on certain specific issues such as the strategic behaviour of firms with regard to sustainable development and the economic benefits of CSR practices. The present study examines the influence of western organizations on responsible corporate behaviour in developing countries, an issue that has been somewhat neglected in the existing academic literature. In particular, it explores the environmental upgrading of developing country firms in global value chains.This research, conducted with the analytic hierarchy process (AHP) method, involves 24 Tunisian olive oil companies. The findings indicate that exporting companies have indeed benefited from environmental upgrading, but, because of the cooperation strategy adopted by leading western firms (imposition of standards) and the absence of financial and technical assistance, the extent of environmental upgrading remains limited. Copyright © 2015 John Wiley & Sons, Ltd and ERP Environment

How do Institutions Matter for the Internationalization of Emerging Economy Firms? : Evidence from China

Research proposes that institutions matter in shaping firm strategic behavior as well as the performance implications of such behavior but is less forthcoming with respect to how they matter especially during the process of internationalization of emerging-economy firms. We build on the institution-based view to propose that emerging-economy firms often involves significant interplays with institutional rules as well as the changes of such rules when going international. We argue that the institutions in emerging economies play a central role in shaping the international expansion and the performance outcomes of such strategic behavior. In other words, institutions may shape and determine directly how emerging-economy firms formulate and implement strategies that create a competitive advantage. We test the proposed hypotheses using a comprehensive longitudinal data of internationalizing firms from China and offer important contributions and insights to better understand how institutions matter in explaining the internationalization strategy and performance of emerging-economy firms.