24/09/2016
Factor Market Rivalry and Inter Industry Competitive Dynamics

Factor Market Rivalry and Inter Industry Competitive Dynamics

Using ten years of data on infringement lawsuits, the study reveals how firms that operate in distinctly different product markets attack each other in overlapping factor markets.

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Competitive dynamics research tends to study engagements by focusing on firms that share a certain level of commonality—often related to product offerings, technological domains, and, thus, competitive contexts. Following industrial-organizational (IO) economic frameworks (cf. Chen and Miller, 2012; Porter, 1980), researchers have predominantly taken a product-market view, focusing on fairly homogenous firms from the same industry (Chen, 1996). Thus, prevailing competitive dynamics research classifies firms as rivals when they proffer substitutable offerings to similar buyers in comparable markets—e.g., Coke vs. Pepsi, Ford vs. Toyota, P&G vs. Unilever, etc. (cf. Chen and Miller, 2012; Ketchen, Snow, and Hoover, 2004). 

Such scholarly effort has contributed greatly to our understanding of rivalry. However, if rivalrous behavior is not limited to similar firms – i.e. that compete over customers in the same or related product markets – but in fact, entails competitors from different industries, then what are the implications for competitive dynamics research and theory? We anticipate several implications because—at least under the current view of competition—it is not trivial to anticipate and explain why firms from different industries and strategic groups can still contest each other (Markman, Gianiodis, and Buchholtz, 2009; Ndofor, Sirmon, and He, 2011). Thus, continuing to rely on a restricted definition of rivalrous behavior hinders the theoretical advancement in the literature (Chen and Miller, 2012). 

By addressing this question, we seek to make two main contributions. First, we extend theory by clarifying why and how even very different firms—in terms of size, strategic groups, and customer base—can still act as rivals (e.g., a small, biotech startup competing with a multinational, telecommunication firm) (Markman et al., 2009). Hence, we employ a factor market rivalry perspective, which broadens the scope of competitive dynamics to explicitly include engagements between dissimilar, and thus unexpected combatants (Chen and Miller, 2015). By relaxing industry designations as a boundary condition to study competitive interactions, we can examine friction points that are often overlooked. This helps to reduce firms’ “blind spots”, which can be the source of intensifying rivalry (Zajac and Bazerman, 1991). 

Second, we add nuance to the factor market rivalry perspective by highlighting how two important firm-level factors – resource portfolio composition and inter-firm partnerships – affect a firm’s vulnerability to attacks and its proclivity to attack competitors in factor markets (Markman et al., 2009). This is an important distinction; by emphasizing adversarial engagements that research often overlooks, scholars can apply a more complete model of competitive dynamics (Chen and Miller, 2015). For example, while the link between resource acquisition and competitive advantage is not new (cf. Peteraf, 1993), to date competitive dynamics research has neither sufficiently theorized nor empirically tested how rivalry represents a means to secure resource positions (Carmeli and Markman, 2011). 

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