Tag Archives: competition

[9]. Alliance Performance and Subsequent Make-or-Ally Choices: Evidence from the Aircraft Manufacturing Industry

Charlotte Ren, Louis Mulotte, Pierre Dussauge and Jay Anand. Strategic Management Journal, 2022, 43(11): 2382-2413. https://doi.org/10.1002/smj.3410.

Research Summary. We examine how the performance of a firm’s prior alliances influences its propensity to persist with the alliance mode or switch to independent operations in the context of new product introductions (NPIs). Drawing on the behavioral theory of the firm (BTOF), we argue that a firm’s alliance performance has a U-shaped effect on its likelihood of undertaking the subsequent NPI independently and that competitive intensity strengthens this U-shaped relationship. We also predict that firms with above-aspiration alliance performance are more likely to achieve breakthrough performance in the subsequent NPI if they switch to independence than if they continue to ally. Data on NPIs in the global aircraft manufacturing industry (1944–2000) support our hypotheses. Our study extends the alliance literature and contributes to research on how firm performance influences subsequent strategic choices.

Managerial Summary. The dilemma of whether to continue or exit an alliance or relationship is a common one for individuals, countries, and firms. Our study examines firms’ strategic decision to switch to independent operations after having partnered with other firms. Using the aircraft product development context, we show that firms that make such a change in their strategy are the ones that performed either much better or much worse than what they expected. Firms with alliance performance close to their expectations tend to persist with their current strategy. Of the firms that change their strategy, the high performers benefit much more from changing their strategy than low performers. We provide insights regarding when it is preferable for managers to continue to ally or to switch to independence, especially in launching new products.

Click here for the paper: Ren.Mulotte.Dussauge.Anand_2022 SMJ.

[7]. Responses to Rival Exit: Product Variety, Market Expansion, and Preexisting Market Structure

Charlotte Ren, Ye Hu and Tony H. Cui. Strategic Management Journal. 2019, 40(2): 253-276.

Research Summary. This study investigates incumbent responses to a main rival’s exit. We argue that long‐time rivals have developed an equilibrium by offering a mix of overlapping and unique products and by choosing geographic proximity to each other. A rival’s exit, however, disrupts this equilibrium and motivates surviving firms to expand in both product and geographic spaces to seek a new equilibrium. Using data from all U.S. Best Buy stores before and after the exit of Circuit City, we find that Best Buy uses product variety expansion as its major response in markets where Circuit City was colocated, but it more often responds by opening new stores in non‐colocated markets. Regardless of preexisting market structures, the magnitude of product variety expansion decreases with the opening of new stores.

Managerial Summary. How do surviving firms respond to a major rival’s exit? By studying Best Buy’s responses to Circuit City’s withdrawal, we find the survivor expands in both product space (increasing product variety) and geographic space (opening new stores), due to two motives. First, the survivor strives to fill in “holes” left in the market. Second, the survivor experiences uncertainty in the post‐exit world wherein its reference point is gone, threat of potential entry looms, and it lacks information about new entrants. Thus, it must deter potential entry ex ante by preempting many prime product and geographic locations. Best Buy also responds according to preexisting market structures, primarily through product variety expansion in markets wherein Circuit City was colocated and through opening new stores in non‐colocated markets.

Click here for the Ren.Hu.Cui 2019 SMJ Paper.

[2]. Managing Product Variety and Collocation in a Competitive Environment: An Empirical Investigation of Consumer Electronics Retailing

Charlotte Ren, Ye Hu, Yu (Jeffrey) Hu and Jerry Hausman. Management Science. 2011, 57(6): 1009-1024.

Abstract. Product variety is an important strategic tool that firms can use to attract customers and respond to competition. This study focuses on the retail industry and investigates how stores manage their product variety, contingent on the presence of competition and their actual distance from rivals. Using a unique data set that contains all Best Buy and Circuit City stores in the United States, the authors find that a store’s product variety (i.e., number of stock-keeping units) increases if a rival store exists in its market but, in the presence of such competition, decreases when the rival store is collocated (within one mile of the focal store). Moreover, collocated rival stores tend to differentiate themselves by overlapping less in product range than do non-collocated rivals. This smaller and more differentiated product variety may be because of coordinated interactions between collocated stores. In summary, this paper presents evidence of both coordination and competition in retailers’ use of product variety.

Click here for the paper: Ren-Hu-Hu-Hausman 2011MS (SSRN Version).

Online Appendix

[1]. Niche Width Revisited: Organizational Scope, Behavior and Performance

Olav Sorenson, Susan McEvily, Charlotte Ren and Raja Roy. Strategic Management Journal. 2006, 27(10): 915-936.

Abstract. Although strategy research typically regards firm scope as a positional characteristic associated with performance differences, we propose that broad contemporary scope also provides insight into the routines that govern firm behavior. To attain broad scope, firms must repeatedly explore outside the boundaries of their current niche. Firms with broad niches therefore operate under a set of routines that repeatedly propel them into new market segments, expanding their niche. These niche expansions, however, involve risky organizational changes, behavior that disadvantages generalists relative to specialists, despite the positional value of broad scope. Empirical analyses of machine tool manufacturers and computer workstation manufacturers support this conjecture: (i) generalists introduce new products at a higher than optimal rate, thereby increasing their exit rates; and (ii) generalists also more frequently launch new models with novel features or targeted at new consumer segments rather than improving only incrementally on existing products, further accelerating their odds of failure. After adjusting for these behavioral differences, broad niche widths reduce exit rates, suggesting that they provide positional advantages. The paper discusses how this phenomenon may help to explain the diversification and multi-nationality discounts.

Click here for the paper: Sorenson-McEvily-Ren-Roy_2006SMJ