IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v55y2009i4p526-538.html
   My bibliography  Save this article

Optimal Market Intelligence Strategy When Management Attention Is Scarce

Author

Listed:
  • Markus Christen

    (INSEAD, Singapore 138676, Singapore)

  • William Boulding

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • Richard Staelin

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

Abstract

This paper extends the theoretical literature on firms' optimal information strategies to the situation when a firm's management attention capacity to process available data is scarce. In this case, a firm's optimal market intelligence strategy must trade off learning a little about a broad range of markets (a broad strategy) with gaining a very deep understanding of one or a few markets (a focused strategy). This trade-off is not present when data are scarce, an assumption made in most of the existing literature on optimal information search strategies. However, in data-rich environments, which are of increasing relevance given technology changes, we show a focused market intelligence strategy is always best when managers need to process a substantial amount of data before beginning to gain insights; i.e., there are increasing returns to attention. Interestingly, this focused strategy can also be best with decreasing returns to attention when (a) managers are sufficiently efficient in processing the available data and (b) managers have sufficiently strong initial priors on the unknown market parameters. We show a broad market intelligence strategy is only optimal when new data points are sufficiently redundant, i.e., when the learning rate is sufficiently decreasing with the allocation of more attention. Our results also indicate that advances in information technology can account for the pressure on firms to become more focused and that competition increases the likelihood of a focused strategy. Competition can lead to asymmetric outcomes where firms focus on different markets. Finally, we note that a focused market intelligence strategy, and thus an asymmetric allocation of attention, does not require a priori differences between firms, markets, or market-specific core capabilities. Consequently, a focused market intelligence strategy can result in market-specific core competencies and produce firm differences from equivalent starting conditions.

Suggested Citation

  • Markus Christen & William Boulding & Richard Staelin, 2009. "Optimal Market Intelligence Strategy When Management Attention Is Scarce," Management Science, INFORMS, vol. 55(4), pages 526-538, April.
    • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:4:p:526-538
    DOI: 10.1287/mnsc.1080.0988
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1080.0988
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.1080.0988?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Li, Lode & McKelvey, Richard D. & Page, Talbot, 1987. "Optimal research for cournot oligopolists," Journal of Economic Theory, Elsevier, vol. 42(1), pages 140-166, June.
    2. Arrow, Kenneth J, 1985. "Informational Structure of the Firm," American Economic Review, American Economic Association, vol. 75(2), pages 303-307, May.
    3. Erik Brynjolfsson & Thomas W. Malone & Vijay Gurbaxani & Ajit Kambil, 1994. "Does Information Technology Lead to Smaller Firms?," Management Science, INFORMS, vol. 40(12), pages 1628-1644, December.
    4. Falkinger, Josef, 2007. "Attention economies," Journal of Economic Theory, Elsevier, vol. 133(1), pages 266-294, March.
    5. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    6. Vives, Xavier, 1988. "Aggregation of Information in Large Cournot Markets," Econometrica, Econometric Society, vol. 56(4), pages 851-876, July.
    7. Michael Keren & David Levhari, 1983. "The Internal Organization of the Firm and the Shape of Average Costs," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 474-486, Autumn.
    8. Malueg, David A. & Tsutsui, Shunichi O., 1996. "Duopoly information exchange: The case of unknown slope," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 119-136.
    9. Jagmohan S. Raju & Abhik Roy, 2000. "Market Information and Firm Performance," Management Science, INFORMS, vol. 46(8), pages 1075-1084, August.
    10. John D. C. Little, 1966. "A Model of Adaptive Control of Promotional Spending," Operations Research, INFORMS, vol. 14(6), pages 1075-1097, December.
    11. Richard Makadok & Jay B. Barney, 2001. "Strategic Factor Market Intelligence: An Application of Information Economics to Strategy Formulation and Competitor Intelligence," Management Science, INFORMS, vol. 47(12), pages 1621-1638, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lim, Lewis K.S., 2013. "Mapping competitive prediction capability: Construct conceptualization and performance payoffs," Journal of Business Research, Elsevier, vol. 66(9), pages 1576-1586.
    2. Maryse J. Brand & Evelien P. M. Croonen & Roger T. A. J. Leenders, 2018. "Entrepreneurial networking: a blessing or a curse? Differential effects for low, medium and high performing franchisees," Small Business Economics, Springer, vol. 50(4), pages 783-805, April.
    3. Begen, Mehmet A. & Pun, Hubert & Yan, Xinghao, 2016. "Supply and demand uncertainty reduction efforts and cost comparison," International Journal of Production Economics, Elsevier, vol. 180(C), pages 125-134.
    4. Jingpei Ma & Xuejun Sun, 2023. "Green technology licensing: Evaluating government subsidies based on different efficiency levels across competitors," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 1920-1934, June.
    5. Mehmet Güray Güler, 2022. "An analysis on the marketing budget of a newsvendor," Operational Research, Springer, vol. 22(3), pages 2587-2603, July.
    6. Pun, Hubert & Heese, H. Sebastian, 2015. "A note on budget allocation for market research and advertising," International Journal of Production Economics, Elsevier, vol. 166(C), pages 85-89.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Markus Christen, 2005. "Research Note---Cost Uncertainty Is Bliss: The Effect of Competition on the Acquisition of Cost Information for Pricing New Products," Management Science, INFORMS, vol. 51(4), pages 668-676, April.
    2. Takashi Ui, 2022. "Optimal and Robust Disclosure of Public Information," Papers 2203.16809, arXiv.org, revised Apr 2022.
    3. Lenhard, Severin, 2022. "Imperfect competition with costly disposal," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    4. Takashi Ui, 2022. "Optimal and Robust Disclosure of Public Information," Working Papers on Central Bank Communication 039, University of Tokyo, Graduate School of Economics.
    5. Sjaak Hurkens, 2014. "Bayesian Nash equilibrium in “linear” Cournot models with private information about costs," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(2), pages 203-217, June.
    6. Florian Gauer & Christoph Kuzmics, 2020. "Cognitive Empathy In Conflict Situations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1659-1678, November.
    7. Ui, Takashi & 宇井, 貴志, 2014. "The Social Value of Public Information with Convex Costs of Information Acquisition," Discussion Papers 2014-05, Graduate School of Economics, Hitotsubashi University.
    8. Takashi Ui, 2009. "Bayesian potentials and information structures: Team decision problems revisited," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(3), pages 271-291, September.
    9. Agnès Festré & Pierre Garrouste, 2012. "The ‘Economics of Attention’: A New Avenue of Research in Cognitive Economics," GREDEG Working Papers 2012-12, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    10. Elie Ofek & Özge Turut, 2013. "Vaporware, Suddenware, and Trueware: New Product Preannouncements Under Market Uncertainty," Marketing Science, INFORMS, vol. 32(2), pages 342-355, March.
    11. Angeletos, G.-M. & Lian, C., 2016. "Incomplete Information in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1065-1240, Elsevier.
    12. Guan, Xu & Mantrala, Murali & Bian, Yiwen, 2019. "Strategic information management in a distribution channel," Journal of Retailing, Elsevier, vol. 95(1), pages 42-56.
    13. Christian Hellwig & Laura Veldkamp, 2009. "Knowing What Others Know: Coordination Motives in Information Acquisition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(1), pages 223-251.
    14. Ui, Takashi & Yoshizawa, Yasunori, 2015. "Characterizing social value of information," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 507-535.
    15. Hurkens, Sjaak & Vulkan, Nir, 2006. "Endogenous private information structures," European Economic Review, Elsevier, vol. 50(1), pages 35-54, January.
    16. Esther Hauk & Sjaak Hurkens, 2001. "Secret information acquisition in Cournot markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 18(3), pages 661-681.
    17. Hartmut Egger & Josef Falkinger, 2016. "Limited Consumer Attention in International Trade," Review of International Economics, Wiley Blackwell, vol. 24(5), pages 1096-1128, November.
    18. George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
    19. Leister, C. Matthew, 2020. "Information acquisition and welfare in network games," Games and Economic Behavior, Elsevier, vol. 122(C), pages 453-475.
    20. Luciano Pomatto & Philipp Strack & Omer Tamuz, 2018. "The Cost of Information: The Case of Constant Marginal Costs," Papers 1812.04211, arXiv.org, revised Feb 2023.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:55:y:2009:i:4:p:526-538. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.