Erosion, time compression, and self‐displacement of leaders in hypercompetitive environments

This article examines how leader firms should respond to the erosion of competitive advantages caused by rapid imitation and innovation in hypercompetitive environments. On the one hand, shorter‐lived advantages induce leaders to develop new advantages faster. On the other hand, hypercompetition also erodes the expected returns from new advantages—reducing leaders' incentives to accelerate investments. Since investing faster also raises costs, this article shows that leaders often prefer to renew competitive advantages more slowly in more hypercompetitive industries—thereby increasing the probability of being displaced by competitors. This phenomenon is dubbed self‐displacement. Firms' decision to self‐displace themselves from industry leadership with greater probability is deliberate and rational—not a result of leaders' inability to respond to competitive threats, as previously assumed in the literature. This article also shows that leaders' rule of thumb in more hypercompetitive environments should be to accelerate the development of advantages with high competitive value but low market value. This study is based on a theoretical model and numerical analysis grounded on stylized empirical facts that govern industry competitive macrodynamics and firm investment microdynamics in most industries. Because the model builds on empirically observable constructs, its theoretical propositions are amenable to large sample testing. Copyright © 2010 John Wiley & Sons, Ltd.