|
Article Excerpt
Building on the observation that competitive dynamics and market evolution are inextricably linked and underresearched, we propose a road map to guide and stimulate future research in the area. A number of rationales have been proposed to explain why there is relatively little research directed toward understanding the links between competitive dynamics and market evolution; these include the predominance of different research paradigms in each area, a lack of data appropriate for analyzing the two areas together, and the difficulty of obtaining robust and significant results with analysis that is by definition complex (it must consider factors and outcomes both across firms and over time). Using this last rationale as a starting point, we develop a series of research propositions related to key relationships where (a) insignificant or contradictory results have been obtained (in extant research) or (b) researchers have yet to delve. The propositions are designed to deepen our understanding of the relationship between the areas. Throughout the analysis, the key to developing the propositions is to recognize the importance of moderating factors, mediating factors, and covariates. In addition, where the approach to empirically test a proposition is new, we propose categories, measures, and comparisons that can be used.
Key words: competition; market growth; market potential; competitive response; market structure
History: This paper was received September 11, 2001, and was with authors 6 months for 4 revisions; processed by Gary Lilien.
1. Introduction
Casual observation and a number of studies provide strong evidence that interfirm competition is strongly related to how markets evolve. For example, in new markets, firms constantly innovate and try to improve on competitive products; this is less true in mature markets. In mature markets, firms respond both immediately and aggressively to price reductions by competitors and this is less likely in new markets. While some links between competitive behaviour and market evolution are known and integrated into the fabric of managerial wisdom, it is surprising that little academic research has focussed on understanding these links. As noted in Lambkin and Day (1989) and more recently by Gatignon and Soberman (2002), competitive dynamics and market evolution have received significant individual attention in the past, but interactions between the two are underresearched. Therein lies the purpose of this article. Our objective is to stimulate and guide future research designed to improve our understanding of the interactions between competitive dynamics and market evolution.
We build on Gatignon and Soberman (2002), which surveys the major elements of competitive dynamics and market evolution, respectively, and discusses the small but extant literature that considers interactions between the two. While this chapter is comprehensive, it leaves us with a fundamental conundrum: "Why has so little work been done to understand links between two areas that seem inseparable?" The authors propose several explanations, including (1) the ease of focussing effort in one subject area, (2) a paucity of data that covers both the evolution of a market (from infancy to maturity) and competitive reactions over the period, (3) two research areas that have their origins in different disciplines (this difference seems to have created an artificial barrier to looking at both areas simultaneously), (1) and (4) studies that focus on the links tend to generate either insignificant or contradictory results. While all of these are plausible, the survey lends strong support to the fourth explanation. Researchers have often oversimplified the relationships between competitive dynamics and market evolution. This seems to be an important cause of contradictory or insignificant results because the links between competitive dynamics and market evolution appear to be quite complex.
We take as given that market evolution and competitive dynamics have strong links. It is our belief that if future studies recognize the complexity of the links between the two areas, they should have no more than average difficulty in obtaining clear results. Frequently, factors of market evolution do not have direct effects on competitive dynamics, but affect competitive dynamics through intermediate factors. In other words, the relationship of key factors of market evolution to key factors of competitive dynamics is frequently mediated by unobserved factors. Another aspect of the complexity is the prevalence and role of moderating factors. In addition, this type of research exists in a context of evolving markets where many things change, not just the variables of interest (an ignored but important covariate can be responsible for generating insignificant results when its effect is opposite to the variable of interest).
From this starting point, the paper proposes a research road map. We propose the framework of Figure 1 adapted from Gatignon and Soberman (2002) as a basis for developing research propositions.
This figure emphasizes links between competitive dynamics and market evolution and distinguishes between links based on the direction in which they act. However, within the framework of Figure 1, it is possible to conceive of scores of possible links between the two areas. Accordingly, we focus our discussion on links that have high potential to stimulate interesting research. We do this by examining those links where existing research has yielded inconclusive or contradictory findings. Second, we highlight a number of links that are intuitively important, but are, at present, unexplored. To develop logically consistent propositions, we use the literature in economics, psychology, and sociology to deduce possible moderating factors, mediating factors, and critical covariates. A key objective is to develop propositions that can be subjected to rigorous empirical testing. Where the approach to empirically test a proposition is new, we propose categories, measures, and comparisons that can be used.
In the following section, we present the research propositions for links where factors of competitive dynamics affect market evolution. In the third section, we move to links that act in the opposite direction. In the final section, we consider propositions that deal with how external factors might affect the links between competitive dynamics and market evolution.
2. The Effects of Competitive Dynamics on Market Evolution
The research that discusses how competitive dynamics affect market evolution falls into two groups. The first involves research that focusses on the nature of competition between firms. Here, authors have attempted to explain their findings based on the evolutionary state and/or the structure of the market. The second group is research that seeks to understand market evolution from a perspective of population ecology (Rogers 1983). Here, researchers have identified competitive behavior (especially the entry and exit of firms) as having an important effect on the speed with which a market develops (Lambkin and Day 1989). Because the second group has restricted its examination of competitive behavior to entry and exit, we base this section on how the key factors of competitive response identified in the first group affect market evolution. Our focus is on links where there has been significant controversy or where, intuitively, a hypothesized link should be important. We group the links under five headings: preannouncements, strategic investment in...
|
