This summary encompasses all articles (based on 2024). The summary has been prepared according to the criteria provided by the instructors to dissect papers, making it a solid preparation for the exam. I scored an 8.5 with this summary.
Session 2: Analysis of external environment. Competitive dynamics
(Boyd, J. L. and Bresser, R. K. 2008). Performance implications of delayed competitive responses:
evidence from the U.S. retail industry.
What we already know – What has been established in the literature?
Theory predicts a negative linear relationship between response delay and responder performance
mirrored by an opposing positive linear relationship between response delay and first mover
performance.
Response time (conventional)
First mover are expected to perform better than their slower competitors in theory because of their:
- Superior market insight
- Entrepreneurial prowess
- Competitive creativity
Speed is a source of advantage in new competitive landscapes where competitive advantages are
difficult to sustain.
Conventional research states: Quick responses to competitive challenges helps to limit the first
mover’s ability to build competitive advantage.
Normative research says that the fast-second strategy is more profitable than acting first because this
firm can enjoy cost advantages because it can learn from a rival’s mistakes and improve upon the
original action before the first mover has had time to build an competitive advantage.
Marketing theoretical research recommends response aggressiveness (fast marketing mix reactions to
entry). Aggressive marketing responses (price or advertising adjustments) prevent first mover from
building major market share and profitability advantages.
Management theory: Porter stresses two reasons why quick responses is important:
1. Quick responses prevent the first mover from building barriers such as buyer switching costs
2. Quick responses signal incumbent commitment to defend market positions. If a first-moving firm
experiences fast respondents it may redirect its strategy and incumbents profits and market shares
will be protected.
Thus theoretical research says that you have to respond fast to prevent first-movers to establish
advantages.
Empirical research sees mixed results.
Where is the research gap?
,Traditional first mover theory, overemphasizes the advantages of fast responses and the
disadvantages of responding slowly to competitive attacks. It has overlooked the risk of responding
too fast.
This article contributes by develop theory on first mover and follower advantages by revisiting the
issue of response timing, that is, the consequences of fast versus delayed competitive responses.
What is the research question?
Paper: What is the nature of response timing-performance relationship?
Lesson: What is the relationship between response delay to competitive events and performance of
firms.
What is the intuition behind each hypothesis?/ What is the main theory used?
H1: Responder performance and response delay are related in an inverted U shaped manner: Lower
performance will result for fast and late responders, and higher performance for firms with
intermediate response delays.
Theory:
If a firm responds to early it has not waited long enough for uncertainties to subside or to develop
an effective response, its performance is likely to suffer.
If a firm responds too late, it may not be able to expand successfully because earlier movers will have
gained enough leadership (buyer switching costs) to dominate the market.
Firms with intermediate delay can be expected to outperform fast and late responders because it will
allow for designing an appropriate response without moving too late.
,Blind spots: cognitive biases that lead to judgmental mistakes as when ‘’a competitor will either not
see the significance of events at all, will perceive them incorrectly, or will perceive them only very
slowly’’.
Problem framing limitations (fast respondents): if a firm see a competitive event as a threat they can
provoke responses that are too fast. If a firm see a competitive event as a threat and opportunity,
they develop more measured and creative responses.
Problem framing limitations (late respondents): through inertia firms do not see a threat.
Escalation of commitment (fast respondents): firms with low performance take higher risks.
Escalation of commitment (slow respondents): perceptions of threats can lead to threat-rigidity-
responses firms escalate commitment to prior decisions and actions and restrict the number of
alternatives they consider.
H2: First mover performance and response delay are related in a linear manner: As response delays
are longer (shorter), performance decreases are smaller (greater).
Theory: Long response delays provide first movers with an opportunity to establish first mover
advantages such as technological leadership or buyer switching costs that lead to superior
performance.
Empirical evidence support this positive linear relationship between first mover performance and
response time. First movers have significant higher market share advantages over later entrants next
to profitability advantages, higher profit margins and pricing advantages.
The later the first moving firms faces competitive responses, the more time it has to absorb first
mover benefits.
It is not affected by response timing errors of later entrants. When responders react too fast these
responses still harm the first mover. Fast respondents often imitate the original first mover action and
thereby directly counteract the first movers attempts to build market share or achieve other gains.
What are the findings?
H1 = validated
H2 = Validated
The research suggests that the performance effects of response delays for responders and first-
movers do not mirror each other, but are characterized by different functions, the first being
inverted-U and the second linear.
Connections to the real world?/ Practical implications
Managers should be cautious of both slow and fast responses.
Limitations
This research only looked at the effect of response time on stock market performance but not on
why firms make certain choices about entering the market.
The sample composed only the large retailers operating in the US. Other firms in other industries may
face other degrees of competitiveness and could lead to other results.
! Not very strong because event study. Market is always right assumption is maybe the weakest. !
Methodology
, Key methods used for example event study/survey
Event study:
1 day prior to the press release and 1 day after the release of stock price.
US retail industry
(Dis)advantages of the method
It is not historical because it is not clear what part of changes in stock price is due to the
announcement.
This methodology believes that the market is always right, but it could be that investors think that a
firm made a good choice by timing their entrance better.
Key dependent and independent variables used
Independent Variables:
1. Response Delay: How much time a company took to respond to a competitor's move.
2. Tactical or Strategic Action: Whether the original move or response was a quick change or a
big strategic move.
Dependent variable:
3. Stock prices.
What kind of data is used?
Stock price data
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