Life in the fast lane: Origins of competitive interaction in new vs, established markets, страница 5

Markets with moderately temporary advantages

From the evolutionary theory perspective, established markets with moderately temporary advantages can be conceptualized as search landscapes that are relatively stable and organized into well-defined turfs of competition. These landscapes are relatively stable such that few new peaks rise and old peaks sink slowly as their attractiveness wanes. They are also organized, yet crowded. Competitors occupy relatively well-established and well-known positions in the landscape and accurate maps of the landscape—e.g., peaks and valleys—exist. Some firms are likely to occupy areas with high peaks (with typically moderately sustainable, high performance) while others occupy low peaks or even the valleys (with low performance). Further, norms of mutual forbearance often develop to regulate competitive behavior (Evans and Kessides, 1994; Chen, 1996; Gimeno, 1999). Thus, established market landscapes are likely to have relatively stable competitive structures.

Given the relatively stable topography of established markets, we propose in Hypothesis 1 that high-performing firms in established markets tend to avoid market moves in order to maintain the beneficial status quo. Because high-performing firms have relatively entrenched positions, they are likely to avoid initiating competition with firms in other (nearby) market segments and instead focus on maintaining their own position (i.e., peaks). Introducing products to market segments that are typically already occupied by other firms is likely to invite retaliation (cf. Gimeno, 1999; Gimeno and Woo, 1999). This is especially likely because market moves are highly salient and, therefore, likely to generate fast, vigorous competitive responses. Market moves are also relatively easy to imitate because they are less ambiguous than other types of moves, such as R&D. So, the relative benefits of such disruptive moves may be short lived. Moreover, high performers may be vulnerable to retaliation in several market segments where they are presently strong, making market moves particularly unattractive for them. In contrast, since poorly performing firms occupy low-market positions (i.e., valleys) and have little to protect or lose but immediate (performance) problems to solve, these firms have high incentive to upset the current competitive landscape by making market moves to disrupt rivals' market segments.

In contrast, we propose in Hypothesis 2 that high-performing firms are highly motivated to engage in frequent R&D moves. In order to remain attractive to customers, these firms use repeat R&D moves to improve their products and maintain their current market positions (peaks). This is especially important in established markets where there are many rivals and relatively low switching costs, i.e., in markets where the advantages are moderately temporary. In these markets, firms need to keep moving locally (i.e., innovating) to maintain their current positions and the attractiveness of their peaks. In contrast, low-performing firms are likely to rely less on R&D moves because their effects are less immediate and less clearly helpful for them. Second, high-performing firms engage in frequent R&D moves because such moves help them modify product functionalities according to their own idiosyncratic advantages and, thus, create products that their competitors do not have. This further helps them retain their position on a peak and defend against possible attacks. In contrast, low-performing firms are likely to have few, if any, idiosyncratic advantages to exploit through R&D. Third, high-performing firms may be especially motivated to engage in R&D moves because they are less likely to incur effective retaliation than other types of moves (cf. Miller and Chen, 1994). These moves are less visible, making them more ambiguous than other types of moves. Illustrating this lack of visibility, one participant-manager in our simulation noted that if a potential rival were spending a lot on R&D, ‘then they were up to something,’ but it was unclear what. Indeed, even when competitors can observe R&D moves, they are only a possible competitive threat because it is unclear whether the moves are made to outcompete the focal firm or attack others or are simply irrelevant. These possibilities make R&D moves confusing for other firms to interpret, so they are less likely to enable effective retaliation.