Competitive Rationales: Beneath the Surface of Competitive Behavior

Competitive dynamics research has focused on studying whether rivals are able and likely to carry out competitive actions, typically by examining indirect reasons such as characteristics of the actions themselves, the firms involved, or the competitive context. We explore why rivals initiate a specific competitive action at a particular time and situation. Drawing from the philosophy of action literature, we introduce the concept of competitive rationales to examine the primary reasons that cause tactical actions. Given the rapid exchanges characterizing tactical competitive dynamics, we conducted an inductive, multicase study to explore the reasons behind over 800 discrete tactical decisions carried out by 9 professional basketball coaches during 15 basketball games. To garner insight, we develop a conceptual framework revealing their types and scope. Even during intense head-to-head rivalry, most rationales were not rivalrous but were instead organizational—to optimize resource use, strategic consistency, and reputation—or social—to manage relationships. Moreover, the three main types of rationales varied in scope, extending beyond immediate competitive situations and rivals to address longer term, strategic outcomes, and assorted stakeholders. Thus, our analysis reveals these rationales to be complex and potentially difficult for rivals to decipher. It also recasts each component of the dominant awareness-motivation-capability (AMC) model of rivalry, suggesting that awareness is challenged by subtle rationales, motivation drives not only action but also forbearance, and capability is both a requirement and product of action.

Competitive Dynamics in Strategic Management

Competitive dynamics inquiry originates from a sequence of attacks and counterattacks among firms in an industry. Firms attack and respond to attacks of rivals in order to strengthen or defend their competitive position within their competitive space. Competitive dynamics research is thus centered on the analysis of how the firm’s actions affect rivals’ reactions and performance. Actually, the nature of competitive dynamics research is the open recognition that firm strategies are “dynamic”: Strategic actions initiated by one firm may trigger a series of actions among rival firms. The new competitive environment in many industries has generated the inception of furious competition, emphasizing flexibility, speed, and innovation in response to fast-changing technological and institutional conditions and temporary competitive advantages. The key constructs and the intellectual roots of competitive dynamics (i.e., Schumpeter’s theory of creative destruction and industrial organization economics and related oligopoly theories) offer some practical examples of industry and firm cases where competitive dynamics have found their main applications. The relevant underpinnings of the awareness–motivation–capability (AMC) framework provide an integrative model of the key behavioral drivers that shape a competitive actions and responses framework (i.e., the factors influencing the firm’s awareness of the context; the factors inducing or impeding the motivation of firms to respond to competitors’ action; and the capability-based factors affecting the firm’s ability to undertake actions), the three key attributes (i.e., the specific actions of firms in the industry, the firm’s competitive interdependence, and the antecedents and performance implications of firms’ competitive actions and reactions), and the three main levels of analysis used in competitive dynamics literature (i.e., action-level studies, business-level studies, and corporate-level studies). Some insights regarding the relationship between dynamic competition and the sources of temporary competitive advantage, coopetition dynamics, as well as the kind of accelerated competition epitomizing early 21st-century digital dynamics settings update the traditional competitive dynamics flavor, as they are connected with firms’ strategic interaction and the pursuit of temporary advantages.

Toward a routine-based view of interfirm rivalry

Although organizational routines have attracted increasing attention in strategy and organization research, they have received surprisingly limited attention in competitive dynamics scholarship. Our essay seeks to advance a routine-based view of interfirm rivalry by bridging the competitive dynamics and routine literatures. We put forward a conceptual model of the routine-based view of interfirm rivalry that is centered on “competitive action routines.” The model clarifies the roles that managers play in driving a firm’s competitive behavior, challenges the assumption of routine-based rigidity in competitive behavior, and adds nuance to our understanding of managerial cognition in competitive dynamics. Moreover, the routine-based view offers new insights regarding the awareness-motivation-capability framework, and amplifies previous calls to broaden the methodological repertoire of competitive dynamics research.

Competitive Dynamics

This article introduces research in competitive dynamics, a collection of work that has developed within the field of strategic management since the late 1980s. Competitive dynamics is the study of interfirm rivalry constituted of competitive actions and responses, their micro- and macro-level context as well as their antecedents and consequences (Chen and Miller 2012, cited under Reviews). Related research addresses fundamental questions such as: “Why do firms engage in competitive rivalry?” “What characterizes the competitive interaction between firms?” “How do focal firms’ competitive actions and rivals’ responses influence firm performance?” “How do contextual factors influence competitive dynamics?” Competition has long been at the center of academic debate, starting with the analysis on the functioning of economic markets and Adam Smith’s welfare competition. While this debate had traditionally been dominated by economists, scholars such as Michael Porter introduced a management perspective on competition. Within the management discipline, two conceptions of competition developed. In a more static conception based on economic theory, competition was formalized as an inherent characteristic of market structures, viewing market forces as determinants of the degree and the type of competition within an industry (Baum and Korn 1996, cited under Multimarket Contact, Multimarket Competition, and Mutual Forbearance). A second conception was motivated by Joseph Schumpeter’s concept of “creative destruction” and the Austrian school of economics (Smith, et al. 2001, cited under Reviews). This dynamic conception of competition accentuates the individual behavior of each competing firm (Baum and Korn 1996, cited under Multimarket Contact, Multimarket Competition, and Mutual Forbearance) and became known as “competitive dynamics research.” It assumes that performance differences between firms operating in the same industry are the result of competitive actions that are aimed at obtaining successive temporary advantages (Young, et al. 1996, cited under Competitive Actions: Characteristics, Drivers, and Performance Outcomes). Since the beginning of the 1990s, the competitive dynamics research program has flourished, and a large body of work has emerged within the literature on competitive strategy, consisting of several sub-streams such as competitive action and response, first-mover advantage, and multimarket competition(Ketchen, et al. 2004, cited under Reviews). Research within these sub-streams is largely unified by its reliance on a common theoretical perspective, the awareness-motivation-capability (AMC) framework (Chen 1996, cited under Awareness-Motivation-Capability Framework). Leading scholars in the field of competitive dynamics are, among others, Ming-Jer Chen, Walter J. Ferrier, Danny Miller, and Ken G. Smith.

The Effects of TMT Faultlines and CEO-TMT Power Disparity on Competitive Behavior and Firm Performance

Although upper echelons scholars have drawn from the demographic faultlines concept to study top management team (TMT) subgroup dynamics, the effects of TMT faultlines on competitive behavior and performance outcomes have not been well documented. To gain greater insight, we develop a model that connects TMT faultlines, CEO-TMT power disparity, competitive behavior, and firm performance. We hypothesize that TMT faultlines and CEO-TMT power disparity jointly determine a firm’s competitive aggressiveness and simplicity, and these two competitive behaviors influence firm performance. Using a sample of 295 U.S. firms in 146 industries from 2000 to 2013, our findings indicate that (a) TMTs with strong faultlines take fewer and simpler competitive actions, and CEO-TMT power disparity further worsens the negative effect on the volume of competitive actions, and (b) fewer and simpler competitive actions benefit short-term firm performance; however, they hurt the long-term firm performance trend. These findings contribute to the upper echelons and competitive dynamics research and suggest important managerial implications.

Does It Pay to Compete Aggressively? Contingent Roles of Internal and External Resources

We examine, in hypercompetitive environments, why some firms fail to benefit from competitive aggressiveness while others experience superior profits. We explore the relationship between competitive aggressiveness and performance in a sample of 141 firms from three hypercompetitive industries—personal computers, computer-aided software engineering, and semiconductors—from 1995 to 2006. Contrary to the predominant view within competitive dynamics research, we find that competitive aggressiveness is not a universally effective strategy. For some firms, excessive competitive aggressiveness can escalate costs and diminish performance. Using polynomial regression analysis and response surface methodology, we identify the conditions under which competitive aggressiveness enhances firm performance. Our findings reveal that firms benefit from competitive aggressiveness when they have specialized technological resources and support from a dense network of alliance partners.

How Do Groups Matter?

The purpose of this study is to examine the relationship between competitive responses and performance, subject to environmental dynamism and strategic action types, to understand competitive responses under moderating effects. This study employed a structured content analysis of coding data from multiple sources and collected competitive actions and responses for the period between 1999 and 2011 in the Taiwanese banking industry. The results show that response likelihood, response imitation and response speed are positively associated with firm performance and that environmental dynamism weakens the relationships among firm performance, response likelihood and response speed. Furthermore, the intensity of strategic action strengthens the relationship between response imitation and firm performance. This study first investigates the roles of environmental dynamism and action types on the relationship between competitive response characteristics and firm performance. This study considers not only the impact of individual firms' responses on their performance but also the impact of collective actions taken by other firms, thus providing new insights in competitive dynamics research.