ME too or not me? The influence of the structure of competition on mimetic market entry

Abstract

This paper analyzes how the wider "structure of competition" that a firm finds itself in - in terms of who competes with whom in what segments within an industry - influences its behavior. Specifically, we use this notion to examine how a firm's decision to enter mimetically into a new market depends on the extent to which its competitors compete with each other. We argue that a firm is especially inclined to imitate its direct competitors if its rivals also compete directly with each other, out of a fear to become "the odd one out." This inclination is even stronger if the firm's rivals are engaged in multimarket competition with each other, which leads to non-aggressive behavior due to mutual forbearance. In contrast, a firm tends to shy away from following their competitors' market entry moves if these companies have an equivalent dependence on the segments they operate in, since this sets the stage for aggressive, cut-throat competition; in this case, firms are happy "to be left behind." We test our hypotheses in two distinct contexts, in both cases capturing the full population of firms in the industry: Chinese drug producers' entry into new product markets during the period 1993-2001 and Taiwanese PC hardware manufacturers' entry into new geographic markets in China during the period 1999-2005. We find strong support for our predictions in both contexts. Overall, the results highlight how a firm's (mimetic) behavior not only depends on how it relates to its competitors, but also on how these competitors relate towards each other. We discuss how future research might extend the concept of the structure of competition and how it might be applied to other aspects of organizational behavior.