Organizational learning is a result of knowledge creation, retention, and transfer. An unanswered question in learning theory is whether learning occurs when firms face an unprecedented and urgent crisis as such events leave little time for knowledge creation, and they complicate knowledge transfer and retention. The COVID-19 pandemic is an example because it saddled firms with consequences ranging from liquidity crises to worsened strategic position, and it required urgent responses. Operational and strategic responses had to be made without recent experience from similar situations and with high uncertainty about the duration and severity of the crisis. This paper extends learning theory by developing an argument that such extreme events allow knowledge transfer and retention that current learning theory would not predict. The new predictions are tested on the airline industry, which was severely affected by the mobility restrictions imposed by states. The findings show organizational learning even when facing an unprecedented crisis, but different learning rules were used for reversible and irreversible actions, suggesting that decision makers search for adaptive choices and are mindful of their strategic consequences. Funding: This research received funding from the Hoffman Global Institute for Business and Society. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2023.0083 .
{"title":"Airline Responses to the COVID-19 Collapse: Applying Learning to an Unprecedented Crisis","authors":"H. Greve","doi":"10.1287/stsc.2023.0083","DOIUrl":"https://doi.org/10.1287/stsc.2023.0083","url":null,"abstract":"Organizational learning is a result of knowledge creation, retention, and transfer. An unanswered question in learning theory is whether learning occurs when firms face an unprecedented and urgent crisis as such events leave little time for knowledge creation, and they complicate knowledge transfer and retention. The COVID-19 pandemic is an example because it saddled firms with consequences ranging from liquidity crises to worsened strategic position, and it required urgent responses. Operational and strategic responses had to be made without recent experience from similar situations and with high uncertainty about the duration and severity of the crisis. This paper extends learning theory by developing an argument that such extreme events allow knowledge transfer and retention that current learning theory would not predict. The new predictions are tested on the airline industry, which was severely affected by the mobility restrictions imposed by states. The findings show organizational learning even when facing an unprecedented crisis, but different learning rules were used for reversible and irreversible actions, suggesting that decision makers search for adaptive choices and are mindful of their strategic consequences. Funding: This research received funding from the Hoffman Global Institute for Business and Society. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2023.0083 .","PeriodicalId":45295,"journal":{"name":"Strategy Science","volume":null,"pages":null},"PeriodicalIF":2.9,"publicationDate":"2024-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141816606","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Material adverse change (MAC) clauses and contingent earnouts are important contractual mechanisms used to protect acquirers from the risk of adverse selection. Yet, the extant literature has not sufficiently explored the antecedents of their use, in particular within the context of technology acquisitions. In this study, we take advantage of the passage of the American Inventors Protection Act (AIPA), which disseminated information through the publication of patent applications, to explore the impact of innovation disclosures on the design of technology acquisition contracts. Consistent with the view that an increase in the availability of information related to the broader technological landscape reduces the need for contractual protections in acquisition contracts, our analysis demonstrates that deals disproportionately affected by AIPA have less expansive MAC clauses and are less likely to feature contingent earnouts. These results provide new evidence linking the use of MAC clauses and earnouts with acquisitions subject to information frictions.
{"title":"Innovation Disclosures and the Design of Technology Acquisition Contracts: Evidence from the American Inventors Protection Act","authors":"J. Reuer, Sandip Bisui, George Chondrakis","doi":"10.1287/stsc.2022.0069","DOIUrl":"https://doi.org/10.1287/stsc.2022.0069","url":null,"abstract":"Material adverse change (MAC) clauses and contingent earnouts are important contractual mechanisms used to protect acquirers from the risk of adverse selection. Yet, the extant literature has not sufficiently explored the antecedents of their use, in particular within the context of technology acquisitions. In this study, we take advantage of the passage of the American Inventors Protection Act (AIPA), which disseminated information through the publication of patent applications, to explore the impact of innovation disclosures on the design of technology acquisition contracts. Consistent with the view that an increase in the availability of information related to the broader technological landscape reduces the need for contractual protections in acquisition contracts, our analysis demonstrates that deals disproportionately affected by AIPA have less expansive MAC clauses and are less likely to feature contingent earnouts. These results provide new evidence linking the use of MAC clauses and earnouts with acquisitions subject to information frictions.","PeriodicalId":45295,"journal":{"name":"Strategy Science","volume":null,"pages":null},"PeriodicalIF":3.9,"publicationDate":"2024-06-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141356057","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine how exogenous demand shocks overcome ecosystem bottlenecks in the commercialization of an emergent technology. We argue that demand shocks that spur new technology adoption by niche users pull “hub” firms into country technology markets, despite ecosystem bottlenecks, thereby serving to “jumpstart” the process of ecosystem development and technology commercialization. By analyzing global electric vehicle markets over the period 2008–2017, we find that extreme weather events such as abnormal heat-related events spur adoption of electric vehicles by end users, thereby propelling automotive or hub firms’ entry into country technology markets, and the subsequent shift of their electric vehicle product portfolios toward the more radical version of the technology. Notably, such demand shocks propel firms’ commercialization strategy, despite ecosystem bottlenecks such as the lack of regulatory and economic inducements for adoption, relative absence of complements, and product market differences. After entry, entrant firms’ electric vehicle product portfolios transition from hybrids toward radical technology products and investments in complements, albeit contingent on their competitive market position in the legacy technology. We discuss the implications of these findings concerning the uptake of demand shocks, and their robustness to modeling choices, technological generations across extended timeframes, potential mediating forces, and boundary conditions owing to firm and country-market heterogeneity. Supplemental Material: The online appendices are available at https://doi.org/10.1287/stsc.2022.0075 .
{"title":"How Demand Shocks “Jumpstart” Technological Ecosystems and Commercialization: Evidence from the Global Electric Vehicle Industry","authors":"Sunasir Dutta, G. Vasudeva","doi":"10.1287/stsc.2022.0075","DOIUrl":"https://doi.org/10.1287/stsc.2022.0075","url":null,"abstract":"We examine how exogenous demand shocks overcome ecosystem bottlenecks in the commercialization of an emergent technology. We argue that demand shocks that spur new technology adoption by niche users pull “hub” firms into country technology markets, despite ecosystem bottlenecks, thereby serving to “jumpstart” the process of ecosystem development and technology commercialization. By analyzing global electric vehicle markets over the period 2008–2017, we find that extreme weather events such as abnormal heat-related events spur adoption of electric vehicles by end users, thereby propelling automotive or hub firms’ entry into country technology markets, and the subsequent shift of their electric vehicle product portfolios toward the more radical version of the technology. Notably, such demand shocks propel firms’ commercialization strategy, despite ecosystem bottlenecks such as the lack of regulatory and economic inducements for adoption, relative absence of complements, and product market differences. After entry, entrant firms’ electric vehicle product portfolios transition from hybrids toward radical technology products and investments in complements, albeit contingent on their competitive market position in the legacy technology. We discuss the implications of these findings concerning the uptake of demand shocks, and their robustness to modeling choices, technological generations across extended timeframes, potential mediating forces, and boundary conditions owing to firm and country-market heterogeneity. Supplemental Material: The online appendices are available at https://doi.org/10.1287/stsc.2022.0075 .","PeriodicalId":45295,"journal":{"name":"Strategy Science","volume":null,"pages":null},"PeriodicalIF":3.9,"publicationDate":"2024-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141117474","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Christopher B. Bingham, K. Heimeriks, Philipp Meyer-Doyle
Technology acquisitions are increasingly prevalent, but their failure rate is notoriously high. Although extant research suggests that collaboration may improve acquisition success, relatively little is known about how firms cultivate collaboration during postmerger integration (PMI) of technology acquisitions. Using inductive multiple-case methods, we address this gap. Our primary contribution is an emergent framework that sheds needed light on how firms cultivate successful collaboration postacquisition. Our study reveals three key mechanisms that help relieve collaboration bottlenecks stemming from geographic, motivational, cultural, and power-perception-related barriers. More broadly, our findings contribute to the literature on postmerger integration.
{"title":"How Firms Cultivate Collaboration During Postmerger Integration of Technology Acquisitions","authors":"Christopher B. Bingham, K. Heimeriks, Philipp Meyer-Doyle","doi":"10.1287/stsc.2022.0094","DOIUrl":"https://doi.org/10.1287/stsc.2022.0094","url":null,"abstract":"Technology acquisitions are increasingly prevalent, but their failure rate is notoriously high. Although extant research suggests that collaboration may improve acquisition success, relatively little is known about how firms cultivate collaboration during postmerger integration (PMI) of technology acquisitions. Using inductive multiple-case methods, we address this gap. Our primary contribution is an emergent framework that sheds needed light on how firms cultivate successful collaboration postacquisition. Our study reveals three key mechanisms that help relieve collaboration bottlenecks stemming from geographic, motivational, cultural, and power-perception-related barriers. More broadly, our findings contribute to the literature on postmerger integration.","PeriodicalId":45295,"journal":{"name":"Strategy Science","volume":null,"pages":null},"PeriodicalIF":3.9,"publicationDate":"2024-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140747095","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ratings of organizations and firms have become ubiquitous. These ratings, often produced by intermediaries (including private and public organizations), are designed to aid consumers and other stakeholders in their decision making while guiding rated organizations toward performance improvement or compliance. In doing so, these intermediaries introduce new information to markets. However, disparities may exist in the ability to strategically capture the value from such ratings, often due to differential access to complementary assets among stakeholders. Consequently, this differential ability can lead to outcomes contrary to the rating institutions’ intentions. Reflecting on this dynamic, we analyze how widespread access to a prevalent type of rating—school performance information, often produced to enhance transparency and equity in educational access—has affected existing economic and social disparities in America. We leverage the staged rollout of GreatSchools.org school ratings from 2006 to 2015 to answer this question. Across various outcomes and specifications, we find that the availability of school ratings has accelerated the divergence in housing values, income distributions, education levels, and racial and ethnic composition across communities. Affluent and more educated families were better positioned to strategically leverage this new information to capture educational opportunities in communities with top schools. The uneven benefits we observe highlight how ratings can unintentionally deepen existing inequalities, thereby complicating their intended impacts. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2023.0113 .
{"title":"Who Captures the Value from Organizational Ratings?: Evidence from Public Schools","authors":"Sharique Hasan, Anuj Kumar","doi":"10.1287/stsc.2023.0113","DOIUrl":"https://doi.org/10.1287/stsc.2023.0113","url":null,"abstract":"Ratings of organizations and firms have become ubiquitous. These ratings, often produced by intermediaries (including private and public organizations), are designed to aid consumers and other stakeholders in their decision making while guiding rated organizations toward performance improvement or compliance. In doing so, these intermediaries introduce new information to markets. However, disparities may exist in the ability to strategically capture the value from such ratings, often due to differential access to complementary assets among stakeholders. Consequently, this differential ability can lead to outcomes contrary to the rating institutions’ intentions. Reflecting on this dynamic, we analyze how widespread access to a prevalent type of rating—school performance information, often produced to enhance transparency and equity in educational access—has affected existing economic and social disparities in America. We leverage the staged rollout of GreatSchools.org school ratings from 2006 to 2015 to answer this question. Across various outcomes and specifications, we find that the availability of school ratings has accelerated the divergence in housing values, income distributions, education levels, and racial and ethnic composition across communities. Affluent and more educated families were better positioned to strategically leverage this new information to capture educational opportunities in communities with top schools. The uneven benefits we observe highlight how ratings can unintentionally deepen existing inequalities, thereby complicating their intended impacts. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2023.0113 .","PeriodicalId":45295,"journal":{"name":"Strategy Science","volume":null,"pages":null},"PeriodicalIF":3.9,"publicationDate":"2024-03-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140380104","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Existing research shows that shareholder pressures can shorten firms’ investment horizons. Yet studies have so far been limited to the actions shareholders take directly toward a focal firm. Considering that shareholder pressures may spill over between organizations, we argue that firms shorten their investment horizons following shareholder-initiated lawsuits against their peers in an effort to boost their short-run performance and preempt being sued themselves. We further posit that the negative relationship between this form of litigation threat and a firm’s investment horizon is weakened among firms with more long-term shareholders or future-focused CEOs, both of which guard against managers becoming overly short-term oriented. An examination of 18 years of shareholder litigation data supports our theory. This study highlights shareholder litigation as a distinct form of shareholder voice and one that is sufficiently potent to create spillover effects between firms.
{"title":"Why Are Corporate Investment Horizons Shrinking? Uncovering the Spillover Effects of Shareholder Litigation","authors":"Mark R. DesJardine, Wei Shi, Yin Cheng","doi":"10.1287/stsc.2022.0111","DOIUrl":"https://doi.org/10.1287/stsc.2022.0111","url":null,"abstract":"Existing research shows that shareholder pressures can shorten firms’ investment horizons. Yet studies have so far been limited to the actions shareholders take directly toward a focal firm. Considering that shareholder pressures may spill over between organizations, we argue that firms shorten their investment horizons following shareholder-initiated lawsuits against their peers in an effort to boost their short-run performance and preempt being sued themselves. We further posit that the negative relationship between this form of litigation threat and a firm’s investment horizon is weakened among firms with more long-term shareholders or future-focused CEOs, both of which guard against managers becoming overly short-term oriented. An examination of 18 years of shareholder litigation data supports our theory. This study highlights shareholder litigation as a distinct form of shareholder voice and one that is sufficiently potent to create spillover effects between firms.","PeriodicalId":45295,"journal":{"name":"Strategy Science","volume":null,"pages":null},"PeriodicalIF":3.9,"publicationDate":"2024-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140232965","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Platform governance helps align the activities of participating actors to deliver value within the platforms. These platforms can operate in environments where governance is intentionally or conventionally weak in favor of open access, frictionless transactions, or free speech. Such low- or no-governance environments leave room for illegitimate actors to penetrate platforms with illegitimate content or transactions. We propose that an external observer can employ transparency mechanisms to establish “soft” governance that allows participants in a low-governance environment to distinguish between sources of legitimate and illegitimate content. We examine how this might work in the context of disinformation Internet domains by training a machine learning classifier to discern between low-legitimacy from high-legitimacy content providers based on website registration data. The results suggest that an independent observer can employ such a classifier to provide an early, although imperfect, signal of whether a website is intended to host illegitimate content. We show that the independent observer can be effective at serving multiple platforms by providing intermediate prediction results that platforms can align with their unique governance priorities. We expand our analysis with a signaling game model to ascertain whether such a soft governance structure can be resilient to adversarial responses. Funding: Funding for this research was provided by UCL School of Management and Emory University. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2023.0006 .
{"title":"Soft Governance Across Digital Platforms Using Transparency","authors":"Anil R. Doshi, William Schmidt","doi":"10.1287/stsc.2023.0006","DOIUrl":"https://doi.org/10.1287/stsc.2023.0006","url":null,"abstract":"Platform governance helps align the activities of participating actors to deliver value within the platforms. These platforms can operate in environments where governance is intentionally or conventionally weak in favor of open access, frictionless transactions, or free speech. Such low- or no-governance environments leave room for illegitimate actors to penetrate platforms with illegitimate content or transactions. We propose that an external observer can employ transparency mechanisms to establish “soft” governance that allows participants in a low-governance environment to distinguish between sources of legitimate and illegitimate content. We examine how this might work in the context of disinformation Internet domains by training a machine learning classifier to discern between low-legitimacy from high-legitimacy content providers based on website registration data. The results suggest that an independent observer can employ such a classifier to provide an early, although imperfect, signal of whether a website is intended to host illegitimate content. We show that the independent observer can be effective at serving multiple platforms by providing intermediate prediction results that platforms can align with their unique governance priorities. We expand our analysis with a signaling game model to ascertain whether such a soft governance structure can be resilient to adversarial responses. Funding: Funding for this research was provided by UCL School of Management and Emory University. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2023.0006 .","PeriodicalId":45295,"journal":{"name":"Strategy Science","volume":null,"pages":null},"PeriodicalIF":3.9,"publicationDate":"2024-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140247699","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study develops a novel framework about how a firm’s financing outcome will be shaped by its communication under different types of uncertainty. Whereas prior work has largely focused on uncertainties that arise because of founders having a knowledge advantage over investors, we examine a firm’s communication in situations of more fundamental uncertainty when both founders and investors face knowledge problems. Our framework proposes that in situations where founders have a knowledge advantage over investors (i.e., when there is information asymmetry), firms that reduce uncertainty by sending signals of quality and express less uncertainty in their communications will enjoy better financing outcomes. However, we argue that in situations characterized by high unknowability, and where founders do not have a significant knowledge advantage over investors (i.e., when there is Knightian uncertainty), firms that acknowledge this unknowability by expressing more uncertainty in their communications will have more favorable financing outcomes. Studying the full population of special purpose acquisition companies (SPACs) that sought to complete an initial public offering from the emergence of the sector in 2003–2019, we find support for our predictions. This study expands our understanding of the role of uncertainty in investment decisions, offers deeper insight into how language operates in financial markets, and sheds light on the increasingly popular, but understudied, SPAC vehicle. Funding: Ivana Naumovska received financial support from the INSEAD R&D Committee and the INSEAD Dean’s Annual Fund. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2022.0043 .
{"title":"Communication under Uncertainty and the Role of Founders’ Information Advantage: Evidence from SPAC IPOs","authors":"I. Naumovska, Derek Harmon","doi":"10.1287/stsc.2022.0043","DOIUrl":"https://doi.org/10.1287/stsc.2022.0043","url":null,"abstract":"This study develops a novel framework about how a firm’s financing outcome will be shaped by its communication under different types of uncertainty. Whereas prior work has largely focused on uncertainties that arise because of founders having a knowledge advantage over investors, we examine a firm’s communication in situations of more fundamental uncertainty when both founders and investors face knowledge problems. Our framework proposes that in situations where founders have a knowledge advantage over investors (i.e., when there is information asymmetry), firms that reduce uncertainty by sending signals of quality and express less uncertainty in their communications will enjoy better financing outcomes. However, we argue that in situations characterized by high unknowability, and where founders do not have a significant knowledge advantage over investors (i.e., when there is Knightian uncertainty), firms that acknowledge this unknowability by expressing more uncertainty in their communications will have more favorable financing outcomes. Studying the full population of special purpose acquisition companies (SPACs) that sought to complete an initial public offering from the emergence of the sector in 2003–2019, we find support for our predictions. This study expands our understanding of the role of uncertainty in investment decisions, offers deeper insight into how language operates in financial markets, and sheds light on the increasingly popular, but understudied, SPAC vehicle. Funding: Ivana Naumovska received financial support from the INSEAD R&D Committee and the INSEAD Dean’s Annual Fund. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2022.0043 .","PeriodicalId":45295,"journal":{"name":"Strategy Science","volume":null,"pages":null},"PeriodicalIF":3.9,"publicationDate":"2024-02-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140415756","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Richard Saouma, Orie Shelef, Robert Wuebker, Anita McGahan
How should an incumbent respond to the arrival of an entrant? A long-standing literature documents a host of potential responses, but little work explores when each strategy will be more or less effective. This paper develops a model of incumbent-entrant competition between vertically and horizontally differentiated firms and applies that model to understand the incentives that shape an incumbent’s response to entry and ultimately, long-run profits. Analysis reveals the conditions under which an incumbent facing the full strategy space of possible exogenous entrants has incentive to attack an entrant and conditions where the incumbent has incentive to retreat. By viewing the incumbent and entrant in terms of their level of vertical and horizontal differentiation, this paper offers a unified view of prior work that generates insights about incumbent responses to entry that have been underappreciated. Further, this unified view offers insight on the effectiveness of a particular incumbent response. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2022.0060 .
{"title":"Incumbent Incentives in Response to Entry","authors":"Richard Saouma, Orie Shelef, Robert Wuebker, Anita McGahan","doi":"10.1287/stsc.2022.0060","DOIUrl":"https://doi.org/10.1287/stsc.2022.0060","url":null,"abstract":"How should an incumbent respond to the arrival of an entrant? A long-standing literature documents a host of potential responses, but little work explores when each strategy will be more or less effective. This paper develops a model of incumbent-entrant competition between vertically and horizontally differentiated firms and applies that model to understand the incentives that shape an incumbent’s response to entry and ultimately, long-run profits. Analysis reveals the conditions under which an incumbent facing the full strategy space of possible exogenous entrants has incentive to attack an entrant and conditions where the incumbent has incentive to retreat. By viewing the incumbent and entrant in terms of their level of vertical and horizontal differentiation, this paper offers a unified view of prior work that generates insights about incumbent responses to entry that have been underappreciated. Further, this unified view offers insight on the effectiveness of a particular incumbent response. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2022.0060 .","PeriodicalId":45295,"journal":{"name":"Strategy Science","volume":null,"pages":null},"PeriodicalIF":3.9,"publicationDate":"2024-01-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139438704","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this article, we use simulation models to explore interdependent learning in competitive markets. Such interactions require attention to both the mental representations held by the management of the focal firm as well as the beliefs of that management about the representations held by rival management. When jointly determined outcomes are the primary input to the learning process, understanding rival beliefs—what we call strategic empathy—becomes a crucial factor driving performance. To illustrate these processes, we focus on mental representations that a manager has regarding market demand. In our simulation models, learning occurs through market observations, which recalibrate a manager’s representation about demand. But the flexibility allowed by this recalibration is also a way through which managers rationalize incorrect representations. We find these processes sometimes lead to distortions of initially correct representations and may result in superior relative performance by the firm whose manager holds less correct representations. Finally, we explore how superior knowledge of a rival’s demand representations can improve own performance through market actions that intentionally shape how a rival learns. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2018.0083 .
{"title":"Rationalizing Outcomes: Interdependent Learning in Competitive Markets","authors":"Anoop Menon, Dennis Yao","doi":"10.1287/stsc.2018.0083","DOIUrl":"https://doi.org/10.1287/stsc.2018.0083","url":null,"abstract":"In this article, we use simulation models to explore interdependent learning in competitive markets. Such interactions require attention to both the mental representations held by the management of the focal firm as well as the beliefs of that management about the representations held by rival management. When jointly determined outcomes are the primary input to the learning process, understanding rival beliefs—what we call strategic empathy—becomes a crucial factor driving performance. To illustrate these processes, we focus on mental representations that a manager has regarding market demand. In our simulation models, learning occurs through market observations, which recalibrate a manager’s representation about demand. But the flexibility allowed by this recalibration is also a way through which managers rationalize incorrect representations. We find these processes sometimes lead to distortions of initially correct representations and may result in superior relative performance by the firm whose manager holds less correct representations. Finally, we explore how superior knowledge of a rival’s demand representations can improve own performance through market actions that intentionally shape how a rival learns. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2018.0083 .","PeriodicalId":45295,"journal":{"name":"Strategy Science","volume":null,"pages":null},"PeriodicalIF":3.9,"publicationDate":"2024-01-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"139447718","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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