Bridging Behavioral and Economic Theories of Decline: Organizational Inertia, Strategic Competition, and Chronic Failure
AbstractThis paper is another plea for bridging behavioral and economic approaches to the study of competition in markets and strategy making by firms. The arguments focus on a specific case in point: the behavioral theory of organizational decline and the economic modeling of immediate exit. The arguments come in three steps. First, the literature on organizational decline is reviewed by organizing a framework that summarizes arguments from varying economic and organizational perspectives that have, for the most part, developed independently. Observations from empirical and theoretical studies are combined in order to investigate the causes, conditions, courses, and consequences of organizational downturn. Second, a theoretical argument is developed that explains voluntary exit and chronic failure by introducing a proxy of organizational inertia in a model of strategic Cournot duopoly. The key assumptions, which have a behavioral flavour that seemingly contradicts orthodox economics, are grounded in the theoretical and empirical literatures. The results of the model support the claim that "pure profit maximizing behavior may be at the expense of organizational survival" (D'Aveni 1990, p. 135). Third, by formulating two hypotheses and presenting tentative evidence from the chemical industry, the paper hopes to convincingly argue that such integrative models lead to empirical testing of interesting hypotheses. A key finding here is that inefficient firms may outlast their efficient rivals (cf. D'Aveni 1989a).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 44 (1998)
Issue (Month): 4 (April)
Organizational Decline; Game Theoretical Modeling and Nonprofit Maximizing Behavior;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- DeTienne, Dawn R. & Shepherd, Dean A. & De Castro, Julio O., 2008. "The fallacy of "only the strong survive": The effects of extrinsic motivation on the persistence decisions for under-performing firms," Journal of Business Venturing, Elsevier, vol. 23(5), pages 528-546, September.
- Wennberg, Karl & Wiklund, Johan & DeTienne, Dawn & Cardon, Melissa, 2009.
"Reconceptualizing Entrepreneurial Exit: Divergent Exit Routes and Their Drivers,"
Working Paper Series in Business Administration
2009:10, Stockholm School of Economics.
- Wennberg, Karl & Wiklund, Johan & DeTienne, Dawn R. & Cardon, Melissa S., 2010. "Reconceptualizing entrepreneurial exit: Divergent exit routes and their drivers," Journal of Business Venturing, Elsevier, vol. 25(4), pages 361-375, July.
- Shepherd, Dean A. & Wiklund, Johan & Haynie, J. Michael, 2009. "Moving forward: Balancing the financial and emotional costs of business failure," Journal of Business Venturing, Elsevier, vol. 24(2), pages 134-148, March.
- Julio Orlando De Castro, 2004. "The Fallacy of Â´Only the Strong SurviveÂ´: The Effects of Extrinsic (...)," Working Papers Economia wp04-07, Instituto de Empresa, Area of Economic Environment.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If references are entirely missing, you can add them using this form.