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An economic perspective on escalating commitment

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  • Ming‐Je Tang

Abstract

This paper highlights the significance of escalating commitment to strategy formulation, briefly examines behavioral explanations of escalating commitment to a losing course of action, and finally proposes an economic theory of the escalating commitment phenomenon. An example of escalating commitment to an outdated technology is presented. It is shown mathematically that there are economic justifications for escalating commitment to a failing strategy. Strategic implications for the first move advantage and for the U.S. steel, auto and semiconductor industries are discussed.

Suggested Citation

  • Ming‐Je Tang, 1988. "An economic perspective on escalating commitment," Strategic Management Journal, Wiley Blackwell, vol. 9(S1), pages 79-92, June.
    • Handle: RePEc:bla:stratm:v:9:y:1988:i:s1:p:79-92
    DOI: 10.1002/smj.4250090709
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    Cited by:

    1. Eugene Kang & Asghar Zardkoohi & Ramona Paetzold & Donald Fraser, 2013. "Relationship banking and escalating commitments to bad loans," Small Business Economics, Springer, vol. 40(4), pages 899-910, May.
    2. William Boulding & Markus Christen, 2008. "Disentangling Pioneering Cost Advantages and Disadvantages," Marketing Science, INFORMS, vol. 27(4), pages 699-716, 07-08.
    3. Arjen van Witteloostuijn, 1998. "Bridging Behavioral and Economic Theories of Decline: Organizational Inertia, Strategic Competition, and Chronic Failure," Management Science, INFORMS, vol. 44(4), pages 501-519, April.
    4. Sofka, Wolfgang & Schmidt, Tobias, 2004. "I Like The Way You Move: An Empirical Investigation into the Mechanisms Behind First Mover and Follower Strategies," ZEW Discussion Papers 04-87, ZEW - Leibniz Centre for European Economic Research.
    5. Armbruster, Kathrin & Beckmann, Michael & Kuhn, Dieter, 2012. "Task Allocation and Corporate Performance : is There a First-Mover Advantage?," Working papers 2012/07, Faculty of Business and Economics - University of Basel.
    6. Andrew T. Ching & Hyunwoo Lim, 2020. "A Structural Model of Correlated Learning and Late-Mover Advantages: The Case of Statins," Management Science, INFORMS, vol. 66(3), pages 1095-1123, March.
    7. Yamakawa, Yasuhiro & Cardon, Melissa S., 2017. "How prior investments of time, money, and employee hires influence time to exit a distressed venture, and the extent to which contingency planning helps," Journal of Business Venturing, Elsevier, vol. 32(1), pages 1-17.
    8. Bayus Barry & Chintagunta Pradeep, 2003. "Competitive Entry and Pricing Responses to Product Innovation," Review of Marketing Science, De Gruyter, vol. 1(1), pages 1-26, August.
    9. Sébastien Liarte & Bernard Forgues, 2008. "Location strategies of multiunit service businesses: spatial differentiation and agglomeration among hamburger restaurants in Paris, 1984–2004," Service Business, Springer;Pan-Pacific Business Association, vol. 2(3), pages 233-248, September.

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