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Resolving the Commitment vs. Flexibility Trade-Off: The Role of Resource Accumulation Lags

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  • Pacheco-de-Almeida , Gonçalo
  • Henderson, James E.
  • Cool , Karel

Abstract

We examine how time-consuming resource accumulation influences the classic strategy trade-off between commitment and flexibility. In particular, using data from the worldwide petrochemical industry during the period 1975 to 1995, we study the impact of new plants’ time-to-build on firms’ decisions to invest under uncertainty. Our results suggest a nontrivial positive effect of resource accumulation lags on investment. Contradicting conventional wisdom, we show that competition may be fiercer in industries where firms accumulate resources more slowly and that uncertainty is not always a disincentive for investment. The robustness of these results is only mitigated for extremely long resource accumulation lags.

Suggested Citation

  • Pacheco-de-Almeida , Gonçalo & Henderson, James E. & Cool , Karel, 2008. "Resolving the Commitment vs. Flexibility Trade-Off: The Role of Resource Accumulation Lags," HEC Research Papers Series 987, HEC Paris.
    • Handle: RePEc:ebg:heccah:0987
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    Cited by:

    1. Puay Khoon Toh & Taekyu Kim, 2013. "Why Put All Your Eggs in One Basket? A Competition-Based View of How Technological Uncertainty Affects a Firm’s Technological Specialization," Organization Science, INFORMS, vol. 24(4), pages 1214-1236, August.
    2. Rodolphe Durand & Panayiotis (Panikos) Georgallis, 2018. "Differential Firm Commitment to Industries Supported by Social Movement Organizations," Organization Science, INFORMS, vol. 29(1), pages 154-171, February.
    3. Axarloglou, Kostas & Visvikis, Ilias & Zarkos, Stefanos, 2013. "The time dimension and value of flexibility in resource allocation: The case of the maritime industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 52(C), pages 35-48.
    4. Li, Xu & Vermeulen, Freek, 2021. "High risk, low return (and vice versa): the effect of product innovation on firm performance in a transition economy," LSE Research Online Documents on Economics 120268, London School of Economics and Political Science, LSE Library.
    5. Marco Berti & Miguel Pina e Cunha, 2023. "Paradox, Dialectics or Trade‐Offs? A Double Loop Model of Paradox," Journal of Management Studies, Wiley Blackwell, vol. 60(4), pages 861-888, June.
    6. Bhawe, Nachiket & Rawhouser, Hans & Pollack, Jeffrey M., 2016. "Horse and cart: The role of resource acquisition order in new ventures," Journal of Business Venturing Insights, Elsevier, vol. 6(C), pages 7-13.
    7. Benischke, Mirko H. & Guldiken, Orhun & Doh, Jonathan P. & Martin, Geoffrey & Zhang, Yanze, 2022. "Towards a behavioral theory of MNC response to political risk and uncertainty: The role of CEO wealth at risk," Journal of World Business, Elsevier, vol. 57(1).
    8. Tony W. Tong & Yong Li, 2011. "Real Options and Investment Mode: Evidence from Corporate Venture Capital and Acquisition," Organization Science, INFORMS, vol. 22(3), pages 659-674, June.
    9. Reha Karadag & Laura Poppo, 2023. "Strategic resource decay," Strategic Management Journal, Wiley Blackwell, vol. 44(6), pages 1534-1561, June.
    10. Jiménez, Alfredo & Bayraktar, Secil, 2021. "Hello! Namaste? Within-country linguistic diversity and infrastructure projects in emerging markets," Journal of Business Research, Elsevier, vol. 130(C), pages 86-97.
    11. Sihem Ben Mahmoud-Jouini & Philippe Silberzahn & Thomas Paris, 2017. "Resolving The Commitment-Flexibility Dilemma In New Technology Ventures," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 21(06), pages 1-18, August.

    More about this item

    Keywords

    Resource accumulation; commitment; flexibility; petrochemical; investment;
    All these keywords.

    JEL classification:

    • L00 - Industrial Organization - - General - - - General

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