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Multimarket Value Creation and Competition

Author

Listed:
  • Qiang Fu

    (National University of Singapore, Singapore 119245, Republic of Singapore)

  • Ganesh Iyer

    (University of California, Berkeley, Berkeley, California 94720)

Abstract

We analyze multimarket interactions between firms that must invest limited budgets in value (surplus) creation and in competitive rent-seeking activities. Firms are horizontally differentiated on a line segment and compete for multiple markets and prizes that differ in the relative effectiveness of each firm’s competitive rent-seeking spending. Each firm faces a dual trade-off: First, they must choose how much to invest in value creation versus how much to spend in rent-seeking competition. Second, they must decide on how to allocate resources across the different markets. When the market values are exogenous (and identical across markets), the intensity of competition is highest for the market in the middle, rather than in (advantaged) markets that are close or in (disadvantaged) markets that are closer to the rival. Counter to what one would expect, greater firm differentiation actually intensifies the competition in the middle markets. When firms endogenously invest in value creation, they invest more in value creation in closer markets and the investments decline toward the middle. This results in the most intense competition moving away from the middle to a market in each firm’s turf. The analysis also provides a competitive perspective on the home-turf bias phenomenon.

Suggested Citation

  • Qiang Fu & Ganesh Iyer, 2019. "Multimarket Value Creation and Competition," Marketing Science, INFORMS, vol. 38(1), pages 129-149, January.
    • Handle: RePEc:inm:ormksc:v:38:y:2019:i:1:p:129-149
    DOI: 10.1287/mksc.2018.1127
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