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Churn, Baby, Churn: Strategic Dynamics Among Dominant and Fringe Firms in a Segmented Industry

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Author Info

  • John M. de Figueiredo

    ()
    (Anderson Graduate School of Management, University of California at Los Angeles, 110 Westwood Plaza, Suite D508, Los Angeles, California 90095-1481)

  • Brian S. Silverman

    ()
    (Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, Ontario, Canada M5S 3E6)

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    Abstract

    This paper integrates and extends the literatures on industry evolution and dominant firms to develop a dynamic theory of dominant and fringe competitive interaction in a segmented industry. It argues that a dominant firm, seeing contraction of growth in its current segment(s), enters new segments in which it can exploit its technological strengths, but that are sufficiently distant to avoid cannibalization. The dominant firm acts as a low-cost Stackelberg leader, driving down prices and triggering a sales takeoff in the new segment. We identify a "churn" effect associated with dominant firm entry: fringe firms that precede the dominant firm into the segment tend to exit the segment, while new fringe firms enter, causing a net increase in the number of firms in the segment. As the segment matures and sales decline in the segment, the process repeats itself. We examine the predictions of the theory with a study of price, quantity, entry, and exit across 24 product classes in the desktop laser printer industry from 1984 to 1996. Using descriptive statistics, hazard rate models, and panel data methods, we find empirical support for the theoretical predictions.

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    File URL: http://dx.doi.org/10.1287/mnsc.1060.0674
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 53 (2007)
    Issue (Month): 4 (April)
    Pages: 632-650

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    Handle: RePEc:inm:ormnsc:v:53:y:2007:i:4:p:632-650

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    Keywords: competitive dynamics; industry evolution; dominant firms;

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    Cited by:
    1. James D. Campbell & April Mitchell Franco, 2013. "Cannibalization, Innovation and Spin-outs," DRUID Working Papers 13-11, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    2. Claussen, Jörg & Kretschmer, Tobias & Spengler, Thomas, 2010. "Market leadership through technology – Backward compatibility in the U.S. Handheld Video Game Industry," Discussion Papers in Business Administration 12716, University of Munich, Munich School of Management.
    3. JP Eggers & Michal Grajek & Tobias Kretschmer, 2011. "Performance implications of core and complementary pre-entry experience: The role of consumer heterogeneity in mobile telephony," ESMT Research Working Papers ESMT-11-03 (R2), ESMT European School of Management and Technology, revised 29 May 2012.

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