Knowledge that Transforms

This research studies a neglected dimension of competitive defensive strategy—the speed of a competitor's reaction to the introduction of a new product. Building on the literature in organizational and strategic management, the authors investigate how the strategic pressures facing a firm and its organizational characteristics influence the speed with which it is willing and able to respond. A model that considers the ordered nature of the dependent measure is specified and estimated using PIMS data on industrial and consumer product manufacturers. Market growth, the market share of the reacting firm, the typical new product development time and the frequency of product changes in the industry, and the market share of the threatening firm appear to be significant determinants of reaction time.

The authors use primary data to empirically test several hypotheses about business format franchising on the basis of the theoretical model presented in Lal (1990). They find support for the hypothesis that royalty rate balances the incentives to the franchisor to invest in brand name with those to the franchisees to invest in retail service. Also consistent with the mixed strategy equilibrium, the authors find that royalty rate positively affects monitoring frequency, and that monitoring costs negatively affect service level. However, contrary to the theory, the authors find that monitoring costs inversely affect monitoring frequency among franchisors. They analytically extend Lal's model to incorporate heterogeneity in monitoring costs among franchisees belonging to the same franchisor and find strong empirical support for the hypothesis that monitoring costs inversely affect monitoring frequency within a franchise system.

Channels research has consistently argued that asymmetric channel relationships are more dysfunctional than those characterized by symmetric interdependence. The authors propose that the degree of both interdependence asymmetry and total interdependence affect the level of interfirm conflict, trust, and commitment. Using survey data from automobile dealers, they demonstrate that, with increasing interdependence asymmetry, the dealer's trust in and commitment to the supplier decline while interfirm conflict increases. In addition, they demonstrate that relationships with greater total interdependence exhibit higher trust, stronger commitment, and lower conflict than relationships with lower interdependence. The effects on conflict are consistent with those predicted by bilateral deterrence theory, and the effects on trust and commitment are in accord with the authors’ bilateral convergence predictions.