Knowledge that Transforms

A new player, e.g., an entrant, joining an existing game generally al- lows more value to be created, but also creates new alternatives for exist- ing players. Greater value expands the range of equilibrium appropriation levels for an existing player, in particular, lowering the minimum equilib- rium appropriation. The emergence of new alternatives has the opposite eect. We say a player has competitive advantage if the player's minimum equilibrium appropriation is strictly greater than the player's outside al- ternative. That is, the forces of competition alone, as embodied in the conditions de…ning equilibrium, su¢ ce to guarantee a player appropriates more than the best alternative to being in the game, i.e., a sustainable performance advantage. When a player has competitive advantage pre-entry, but not post- entry, we say entry destroys competitive advantage; likewise for creating and sustaining competitive advantage. Our results provide complete char- acterizations (i.e., if and only if statements) of the features of a game that cause the addition of a new player to destroy, create or sustain competitive advantage in a general coalitional game. These results are of importance for strategy issues since -as argued by proponents of value-based business strategy, e.g., Brandenburger and Stuart (1996) -many of the economic interactions of interest in strategy are well-described as coalitional games.

A firm's product line breadth in a given market has both benefits and costs; these effects can be more clearly seen by examining not only the number of products a firm offers, but also the degree of complexity that the product line represents. The effects of breadth are particularly important for new entrants in a relatively mature industry and I examine the breadth–survival relation on new entrants in the bicycle industry in the period 1993–98. I find that firms offering a greater number of products, those with very simple and very complex product lines, and those whose product lines have a moderate degree of overlap with rivals have the highest survival rates.

Hansen, Perry, and Reese () recently argued for and demonstrated the utility of Bayesian methods for research associated with the resource‐based view (RBV) of the firm. In this paper, we propose that Bayesian approaches are highly relevant not only for strategy problems based on the RBV, but also to its extensions in the areas of dynamic capabilities and co‐evolution of industries and firms. Further, we argue that Bayesian methods are equally applicable for a wide range of strategy research questions at both the micro‐ and macro‐level. Bayesian techniques are especially useful in addressing specific methodological challenges related to firm‐ and individual‐level effects, firm‐level predictive results, precision with small samples, asymmetric distributions, and the treatment of missing data. Moreover, Bayesian methods readily permit the engineering and updating of more realistic, complex models. We provide a specific illustration of the utility of Bayesian approaches in strategy research on entry order and pioneering advantage to show how they can help to inform research that integrates micro‐ and macro‐phenomena within a dynamic and interactive environment.

Innovative industries are often characterized by rapid product turnover. Product longevity may be driven by both a product's position within a market as well as its position within a firm's larger product portfolio. However, we have little understanding of the relative importance of these factors in determining product turnover and how they interact as an industry evolves. Although researchers have invested substantial effort in analyzing firm survival and turnover, there are far fewer studies of the determinants of product survival and turnover. We use hazard rate models and count regression models to describe the behavior of firms and their products with a new and detailed database on the laser printer industry. We show, first, that competition and market structure variables have a large impact on both speeding product exit and delaying product entry. Second, there is some evidence that firms that have maintained a high market share for a number of years keep their products on the market longer than those with lower market share. Finally, firms with high innovative capacity tend to enter markets frequently, but withdraw their products at average rates. Firms with strong brands tend to introduce few products and withdraw their products slowly. With these findings, the paper links product entry and exit decisions to the broader literature on firm strategic and product management.

This study analyzes when different foreign investment location choices are value creating for firms at different stages of international expansion. I argue that because direct investment in developing countries is riskier than in advanced countries, shareholders may not value a firm's investment in developing countries until that firm has experience from previous international investments and capabilities to better manage and hedge the higher levels of risk and uncertainty. Using a panel of 191 U.S. manufacturing firms and their foreign investments over a 20‐year period (1981–2000), the empirical results show that firm investments in advanced and developing countries are valued differently by shareholders, depending on the firm's prior international expansion, the firm's capabilities and experiences, and the knowledge intensity of the firm's industry. These results highlight the importance of considering firm location decisions, prior experiences, and resources when analyzing.

Open systems strategy enables a sponsor to diffuse its technology and promotes standardization in an industry. However, this strategy has been studied in high‐tech settings. We hypothesize that, in a non‐high‐tech industry, a sponsor giving access to its technical knowledge may impact industry structure. Based on a survey of the U.S. tabletop role‐playing game (RPG) industry, our results highlight that the introduction of an open system in a sector creates an entry induction phenomenon and that these new entrants adopt more readily the open system than incumbents. Moreover, the average size of the firms in the industry decreases due to vertical specialization.

Drawing on the strategic employee group concept, this study empirically examines whether a firm's innovation strategy influences compensation systems for strategic employee groups in the high‐technology industry. We focus on compensation packages for R&D employees who play a critical role in successful implementations of innovation strategy. Using compensation data for middle‐level managers and professional employees from 237 firms in the high‐technology industry, we found that a firm's strategic intention to pursue innovation has a significant influence on the relative pay level, compensation time horizon, and stock option vesting period lengths of this strategic employee group.