Essays on the behavioral foundations of competitive interaction

Abstract

The competitive dynamics perspective offers a micro-level, dynamic view of market competition. It is axiomatic for students of competitive dynamics that competitive actions and interactions are shaped by the boundedly rational decision making of organizational actors. Thus competitive behavior cannot be inferred directly from the objective characteristics of the competitive situation. Competitive dynamics researchers have combined rather eclectic theoretical perspectives to develop a plethora of insightful behavioral hypotheses about the predictors of firms' competitive conduct and about the performance implications of those choices. Partly as a result, however, there is a paucity of efforts to systematically explore the behavioral foundations of competitive interaction. In this study, I engage in such an endeavor and propose that a routine-based view of interfirm rivalry offers a fruitful but underexplored behavioral basis for understanding how the bounded rationality of organizational actors influences the process and outcomes of market competition.

The study consists of an overview and four essays, which contribute to a routine-based understanding of interfirm rivalry. I introduce and develop the concept competitive action routines, defined as repeated patterns of interaction between organizational members related to a firm's market moves. The first two essays study the role of competitive action routines in competition related to store openings between Finnish grocery retail organizations (1960-1995). Based on an in-depth qualitative investigation, I argue that competitive action routines are a valuable, often indispensable method with which firms cope with rapidly accelerating rivalry—contrary to the view held by many competitive dynamics scholars that routines are simply a source of inflexibility and inertia. The third essay is a quantitative empirical analysis of the evolution of product launch activities of Finnish mutual fund firms (1997-2009). The fourth essay explores the role of feedback in competitive interaction through a computational study. Together, these two studies suggest that environmental feedback is an important source of heterogeneity in competitive behavior because of the change in organizational routines and rules that the feedback generates.

Overall, the routine-based approach to the study of interfirm rivalry acknowledges that the firm's competitive behavior is a collective enterprise of multiple individuals within the firm. This balances the almost exclusive focus of existing competitive dynamics literature on the very top-level members of organizations. Moreover, the routine-based view implies that rivalry hinges on the firms' previous encounters with competitors. Relatedly, the routine-based view conceptualizes the relationship between competitive actions and performance as a feedback mechanisms, which adds boundary conditions to existing claims about the virtues of competitive aggressiveness. Finally, in terms of predicting competitive moves, a routine-based view suggest that the likelihood, speed and other characteristics of competitive actions are best predicted by the attributes of firms' behavior in the recent past