This paper explores how the strategies that companies use to hedge the volatility in input costs ... more This paper explores how the strategies that companies use to hedge the volatility in input costs influence their output pricing (pass-through) behaviour and competitive interactions in the output market. In industries with large dependence on inputs with volatile prices, companies often engage in risk management practices such as natural hedging (vertical integration, alliances) or financial hedging (future contracts, derivatives). When competitors within the industry use different risk management practices, the result is volatile heterogeneity among competitors in terms of accounting costs of inputs and resources. We explore how such heterogeneity is transferred to competitive interactions in the output market, in the context of fuel hedging in the U.S. airline industry. Although textbook economics suggests that firms should deploy resources based on opportunity costs, not historical (accounting) costs, we observe some correlation between hedging windfalls and aggressive pricing. I...
We examine the tendency of firms to enter the same international markets as other firms from the ... more We examine the tendency of firms to enter the same international markets as other firms from the same country and industry (mimetic international expansion), and whether firm characteristics influ-ence susceptibility to these tendencies. Using data from the global integrated circuits industry from 1962 to 1991, we find that domain overlap encourages mimetic expansion in a country at moderate levels of home-country presence. Older firms and firms with greater and more recent international expansion are less susceptible to mimetic expansion, while firms with multimarket contact with home-country competitors are more susceptible. 3 Firms do not make international expansion decisions in a vacuum. Rather, they act amidst other firms pursuing their own international expansion. The international business literature has long rec-ognized that interorganizational influences affect the direction of international expansion, leading to clustering of firms in particular international locations. R...
We analyze the effect of managerial compensation schemes and organizational structure on competit... more We analyze the effect of managerial compensation schemes and organizational structure on competitive behavior in imperfectly competitive product markets. Previous research suggests that in cases of strategic substitutability, firms tend to choose organizational structures and compensation systems that commit the firm to behaving aggressively in the product market, reducing firm and industry profits. In contrast, we show that while compensation and structure in isolation lead to excessive aggressiveness, the combination of these two internal choice variables may reverse the outcome—organizational design can be used as a commitment device to reduce competitive rivalry. Finally, we find that in equilibrium, firms may choose to be different; one firm is decentralized and uses incentives that commit it to being aggressive, while the other is centralized and uses incentives that commit it to being soft. Hence, endogenous firm heterogeneity in the form of organizational differentiation all...
This study investigates how differences in ownership form-between franchised and company-owned un... more This study investigates how differences in ownership form-between franchised and company-owned units-affect managerial incentives and competitive pricing in different oligopolistic contexts. We argue that chains may restrict decision making in company-owned units as a commitment device to maintain high prices in concentrated markets and found evidence consistent with this argument. We also found that a unit's ownership form affected its rivals' competitive behavior. Our results indicate that company-owned units' ability to raise their own and rivals' prices in highly concentrated markets led to their higher performance relative to franchised units.
We examine the influence of competitive spillovers among subsidiaries on the design of headquarte... more We examine the influence of competitive spillovers among subsidiaries on the design of headquarters-subsidiary relationships. We focus on multi-industry firms and competitive spillovers across markets, hypothesizing that these firms delegate most business-level decisions to subsidiaries but adapt to multimarket competition by limiting their subsidiaries’ incentive and ability to make resource commitments by constraining the scope of decision rights and the available resources, a phenomenon that we refer to as “constrained delegation.” Accordingly, the extent of multimarket contact in a given market (1) is associated with lower subsidiary discretion in decisions pertaining to resource commitments and (2) counteracts the tendency of internal capital markets to provide financial resources to subsidiaries that have a low market share or operate in high-growth industries. Results of analyses, based on the population of majority-owned subsidiaries of groups operating in France between 199...
I examine how firms use alliances to respond to the alliance networks of their rivals, by either ... more I examine how firms use alliances to respond to the alliance networks of their rivals, by either allying with their rivals ’ partners or by building countervailing alliances. Evidence from the global airline industry (1994–98) suggests that these strategic re-sponses depend on alliance cospecialization. Cospecialized alliances by rivals may involve exclusivity, precluding alliances with the rivals ’ partners and thus encourag-ing countervailing alliances. Nonspecialized alliances are less exclusive and are used when rivals share the same partners. Over the last decade, the network metaphor has become influential in research into strategic alli-ances and interorganizational relationships (Gulati, 1998), along with more established perspectives, such as the transaction cost and capability views (Hennart, 1988; Richardson, 1972). Alliance net-works may provide members such benefits as ac-cess to capabilities and information from direct and indirect partners, referrals to other potentia...
and three ASQ anonymous referees for their valuable comments on earlier drafts, and Tim Bates, Jo... more and three ASQ anonymous referees for their valuable comments on earlier drafts, and Tim Bates, Josef Bruderl, Linda Leighton, and Alfred Nucci for sharing their knowledge of other data sources for entrepreneurship research. We also thank Javier Fernandez Navas and Diane Roden for their research help. We acknowledge the help and support of the National Federation of Independent Business. An earlier version of this paper received the 1992 Best Empirical Paper Award from the Entrepreneurship Division of the Academy of Management. The model developed here explains why some firms survive while other firms with equal economic performance do not. We argue that organizational survival is not strictly a function of economic performance but also depends on a firm's own threshold of performance. We apply this threshold model to the study of new venture survival, in which the threshold is determined by the entrepreneur's human capital characteristics, such as alternative employment opportunities, psychic income from entrepreneurship, and cost of switching to other occupations. Using a sample of 1,547 entrepreneurs of new businesses in the U.S., we find strong support for the model. The findings suggest that firms with low thresholds may choose to continue or survive despite comparatively low performance.' It has been frequently argued that, at least in the long run, well-performing organizations survive while poorly performing ones disappear (Alchian, 1950; Friedman, 1953; Winter, 1964; Williamson, 1991). Penrose (1952: 810) summarized this theoretical view as stating that "positive profits can be treated as the criterion of natural selection-the firms that make profits are selected or 'adopted' by the environment, others are rejected and disappear." This view implies a unidimensional relationship between economic performance (defined as the economic returns to residual claimants) and survival, since the firms most likely to discontinue are those that perform the worst. From this unidimensional model, it follows that economic performance and survival should have the same determinants or predictors. Interestingly, mounting empirical evidence suggests that the determinants of performance and survival may substantially differ (
This study investigates how differences in ownership form-between franchised and company-owned un... more This study investigates how differences in ownership form-between franchised and company-owned units-affect managerial incentives and competitive pricing in different oligopolistic contexts. We argue that chains may restrict decision making in company-owned units as a commitment device to maintain high prices in concentrated markets and found evidence consistent with this argument. We also found that a unit's ownership form affected its rivals' competitive behavior. Our results indicate that company-owned units' ability to raise their own and rivals' prices in highly concentrated markets led to their higher performance relative to franchised units.
ABSTRACT This dissertation tests the effects of multimarket competition on the rivalry experience... more ABSTRACT This dissertation tests the effects of multimarket competition on the rivalry experienced by firms in their market positions, and on their financial performance. Sixteen hypotheses were tested in a sample of competitors in 3,171 city-pair markets during 1984-1988. A simultaneous equation model and panel data methodology are used to test these hypotheses, with controls for market structures, and intramarket firm positions, firm's costs within each market, and unobserved heterogeneity. The mutual forbearance hypothesis suggests that multipoint competitors are able to improve their performance by reducing rivalry with other multipoint competitors. The first two hypotheses suggest that such an effect on financial performance should be observable, and that the relationship should be completely mediated by the rivalry effect. Both hypotheses are supported, which provides validity for the mutual forbearance hypothesis. Fourteen moderator hypotheses to the relationship between multimarket contact and rivalry are tested next. The first set of six hypotheses relate to factors that facilitate the recognition of extended interdependence among multimarket firms, thus increasing the forbearance effects of multimarket contact. These factors are: saliency of the rival's (H3) and the focal firm's (H4) position in the contact market, relatedness between focal and contact market (H5), actual contacts, rather than potential (H6), contacts with incumbents, rather than potential entrants (H7), and contacts with strategically similar organizations (H8). Hypotheses 3, 4, 5 and 6 are supported, while 7 and 8 are not. The second set of eight hypotheses test factors which encourage the exercise of extended interdependence, and determine the efficient flow of market power among markets. According to Bernhein and Whinston (1990) and Wegberg and Witteloostuijn (1992), power is obtained in contact markets without single-market competitors (H10), with high concentration (H12), with high demand growth (H14), and, for potential multimarket contacts, with easy entry (H16). Multimarket power should have the greatest forbearance impact in markets without single-market competitors (H9), moderate concentration (H11), low demand growth (H13), and, for contacts with potential entrants, when entry into the market is easy (H15). Hypotheses 10, 12 and 14 are supported, 11 and 16 receive partial support, and 9, 13, and 15 find no support.
... recent work in population ecology (Baum & Korn, 1996) , competitive dynamics (Baum et al.... more ... recent work in population ecology (Baum & Korn, 1996) , competitive dynamics (Baum et al., 1996; Gimeno, 1999) and international business (Dunning, 1993) offer some insight into the ... ble pairs of firms within a given geographic area) will vary significantly. Considered from a ...
R ecent research has shown that managers in publicly traded companies facing earnings pressure-th... more R ecent research has shown that managers in publicly traded companies facing earnings pressure-the pressure to meet or beat securities analysts' earnings forecasts-may make business decisions to improve short-term earnings. Analysts' forward-looking performance forecasts can serve as powerful motivation for managers, but may also encourage them to undertake short-term actions detrimental to future competitiveness and performance. To identify whether managerial reactions to earnings pressure suggest evidence of intertemporal trade-offs, we explored how companies respond to earnings pressure under different conditions of corporate governance that shape the temporal orientations of managers. Using data on competitive decisions made by U.S. airlines under quarterly earnings pressure, we examined the effect of earnings pressure on competitive behavior under different ownership structures (ownership by long-term dedicated investors versus transient investors) and CEO incentives (unvested incentives that are restricted or unexercisable in the short term, versus vested incentives). The results suggest that companies with more long-term-oriented investors and long-term-aligned CEOs with unvested incentives are less likely to soften competitive behavior in response to earnings pressure, relative to companies with transient investors and CEOs with vested, immediately exercisable stock-based incentives. Using a difference-indifferences (DiD) specification for stronger identification, we also found that firms respond to their rivals' earnings pressure shocks by increasing capacity and prices, particularly when those rivals do not have long-term-oriented investors and CEO incentives. The evidence is more aligned with the view that the pursuit of short-term earnings as a result of earnings pressure may be detrimental to long-term competitiveness.
Abstract This paper focuses on the nascent entrepreneurial process from an identity-based perspec... more Abstract This paper focuses on the nascent entrepreneurial process from an identity-based perspective. We build on research in the role identity, entrepreneurship, and career literature to develop a multi-dimensional concept of entrepreneurial identity. We link entrepreneurial ...
This paper explores how the strategies that companies use to hedge the volatility in input costs ... more This paper explores how the strategies that companies use to hedge the volatility in input costs influence their output pricing (pass-through) behaviour and competitive interactions in the output market. In industries with large dependence on inputs with volatile prices, companies often engage in risk management practices such as natural hedging (vertical integration, alliances) or financial hedging (future contracts, derivatives). When competitors within the industry use different risk management practices, the result is volatile heterogeneity among competitors in terms of accounting costs of inputs and resources. We explore how such heterogeneity is transferred to competitive interactions in the output market, in the context of fuel hedging in the U.S. airline industry. Although textbook economics suggests that firms should deploy resources based on opportunity costs, not historical (accounting) costs, we observe some correlation between hedging windfalls and aggressive pricing. I...
We examine the tendency of firms to enter the same international markets as other firms from the ... more We examine the tendency of firms to enter the same international markets as other firms from the same country and industry (mimetic international expansion), and whether firm characteristics influ-ence susceptibility to these tendencies. Using data from the global integrated circuits industry from 1962 to 1991, we find that domain overlap encourages mimetic expansion in a country at moderate levels of home-country presence. Older firms and firms with greater and more recent international expansion are less susceptible to mimetic expansion, while firms with multimarket contact with home-country competitors are more susceptible. 3 Firms do not make international expansion decisions in a vacuum. Rather, they act amidst other firms pursuing their own international expansion. The international business literature has long rec-ognized that interorganizational influences affect the direction of international expansion, leading to clustering of firms in particular international locations. R...
We analyze the effect of managerial compensation schemes and organizational structure on competit... more We analyze the effect of managerial compensation schemes and organizational structure on competitive behavior in imperfectly competitive product markets. Previous research suggests that in cases of strategic substitutability, firms tend to choose organizational structures and compensation systems that commit the firm to behaving aggressively in the product market, reducing firm and industry profits. In contrast, we show that while compensation and structure in isolation lead to excessive aggressiveness, the combination of these two internal choice variables may reverse the outcome—organizational design can be used as a commitment device to reduce competitive rivalry. Finally, we find that in equilibrium, firms may choose to be different; one firm is decentralized and uses incentives that commit it to being aggressive, while the other is centralized and uses incentives that commit it to being soft. Hence, endogenous firm heterogeneity in the form of organizational differentiation all...
This study investigates how differences in ownership form-between franchised and company-owned un... more This study investigates how differences in ownership form-between franchised and company-owned units-affect managerial incentives and competitive pricing in different oligopolistic contexts. We argue that chains may restrict decision making in company-owned units as a commitment device to maintain high prices in concentrated markets and found evidence consistent with this argument. We also found that a unit's ownership form affected its rivals' competitive behavior. Our results indicate that company-owned units' ability to raise their own and rivals' prices in highly concentrated markets led to their higher performance relative to franchised units.
We examine the influence of competitive spillovers among subsidiaries on the design of headquarte... more We examine the influence of competitive spillovers among subsidiaries on the design of headquarters-subsidiary relationships. We focus on multi-industry firms and competitive spillovers across markets, hypothesizing that these firms delegate most business-level decisions to subsidiaries but adapt to multimarket competition by limiting their subsidiaries’ incentive and ability to make resource commitments by constraining the scope of decision rights and the available resources, a phenomenon that we refer to as “constrained delegation.” Accordingly, the extent of multimarket contact in a given market (1) is associated with lower subsidiary discretion in decisions pertaining to resource commitments and (2) counteracts the tendency of internal capital markets to provide financial resources to subsidiaries that have a low market share or operate in high-growth industries. Results of analyses, based on the population of majority-owned subsidiaries of groups operating in France between 199...
I examine how firms use alliances to respond to the alliance networks of their rivals, by either ... more I examine how firms use alliances to respond to the alliance networks of their rivals, by either allying with their rivals ’ partners or by building countervailing alliances. Evidence from the global airline industry (1994–98) suggests that these strategic re-sponses depend on alliance cospecialization. Cospecialized alliances by rivals may involve exclusivity, precluding alliances with the rivals ’ partners and thus encourag-ing countervailing alliances. Nonspecialized alliances are less exclusive and are used when rivals share the same partners. Over the last decade, the network metaphor has become influential in research into strategic alli-ances and interorganizational relationships (Gulati, 1998), along with more established perspectives, such as the transaction cost and capability views (Hennart, 1988; Richardson, 1972). Alliance net-works may provide members such benefits as ac-cess to capabilities and information from direct and indirect partners, referrals to other potentia...
and three ASQ anonymous referees for their valuable comments on earlier drafts, and Tim Bates, Jo... more and three ASQ anonymous referees for their valuable comments on earlier drafts, and Tim Bates, Josef Bruderl, Linda Leighton, and Alfred Nucci for sharing their knowledge of other data sources for entrepreneurship research. We also thank Javier Fernandez Navas and Diane Roden for their research help. We acknowledge the help and support of the National Federation of Independent Business. An earlier version of this paper received the 1992 Best Empirical Paper Award from the Entrepreneurship Division of the Academy of Management. The model developed here explains why some firms survive while other firms with equal economic performance do not. We argue that organizational survival is not strictly a function of economic performance but also depends on a firm's own threshold of performance. We apply this threshold model to the study of new venture survival, in which the threshold is determined by the entrepreneur's human capital characteristics, such as alternative employment opportunities, psychic income from entrepreneurship, and cost of switching to other occupations. Using a sample of 1,547 entrepreneurs of new businesses in the U.S., we find strong support for the model. The findings suggest that firms with low thresholds may choose to continue or survive despite comparatively low performance.' It has been frequently argued that, at least in the long run, well-performing organizations survive while poorly performing ones disappear (Alchian, 1950; Friedman, 1953; Winter, 1964; Williamson, 1991). Penrose (1952: 810) summarized this theoretical view as stating that "positive profits can be treated as the criterion of natural selection-the firms that make profits are selected or 'adopted' by the environment, others are rejected and disappear." This view implies a unidimensional relationship between economic performance (defined as the economic returns to residual claimants) and survival, since the firms most likely to discontinue are those that perform the worst. From this unidimensional model, it follows that economic performance and survival should have the same determinants or predictors. Interestingly, mounting empirical evidence suggests that the determinants of performance and survival may substantially differ (
This study investigates how differences in ownership form-between franchised and company-owned un... more This study investigates how differences in ownership form-between franchised and company-owned units-affect managerial incentives and competitive pricing in different oligopolistic contexts. We argue that chains may restrict decision making in company-owned units as a commitment device to maintain high prices in concentrated markets and found evidence consistent with this argument. We also found that a unit's ownership form affected its rivals' competitive behavior. Our results indicate that company-owned units' ability to raise their own and rivals' prices in highly concentrated markets led to their higher performance relative to franchised units.
ABSTRACT This dissertation tests the effects of multimarket competition on the rivalry experience... more ABSTRACT This dissertation tests the effects of multimarket competition on the rivalry experienced by firms in their market positions, and on their financial performance. Sixteen hypotheses were tested in a sample of competitors in 3,171 city-pair markets during 1984-1988. A simultaneous equation model and panel data methodology are used to test these hypotheses, with controls for market structures, and intramarket firm positions, firm's costs within each market, and unobserved heterogeneity. The mutual forbearance hypothesis suggests that multipoint competitors are able to improve their performance by reducing rivalry with other multipoint competitors. The first two hypotheses suggest that such an effect on financial performance should be observable, and that the relationship should be completely mediated by the rivalry effect. Both hypotheses are supported, which provides validity for the mutual forbearance hypothesis. Fourteen moderator hypotheses to the relationship between multimarket contact and rivalry are tested next. The first set of six hypotheses relate to factors that facilitate the recognition of extended interdependence among multimarket firms, thus increasing the forbearance effects of multimarket contact. These factors are: saliency of the rival's (H3) and the focal firm's (H4) position in the contact market, relatedness between focal and contact market (H5), actual contacts, rather than potential (H6), contacts with incumbents, rather than potential entrants (H7), and contacts with strategically similar organizations (H8). Hypotheses 3, 4, 5 and 6 are supported, while 7 and 8 are not. The second set of eight hypotheses test factors which encourage the exercise of extended interdependence, and determine the efficient flow of market power among markets. According to Bernhein and Whinston (1990) and Wegberg and Witteloostuijn (1992), power is obtained in contact markets without single-market competitors (H10), with high concentration (H12), with high demand growth (H14), and, for potential multimarket contacts, with easy entry (H16). Multimarket power should have the greatest forbearance impact in markets without single-market competitors (H9), moderate concentration (H11), low demand growth (H13), and, for contacts with potential entrants, when entry into the market is easy (H15). Hypotheses 10, 12 and 14 are supported, 11 and 16 receive partial support, and 9, 13, and 15 find no support.
... recent work in population ecology (Baum & Korn, 1996) , competitive dynamics (Baum et al.... more ... recent work in population ecology (Baum & Korn, 1996) , competitive dynamics (Baum et al., 1996; Gimeno, 1999) and international business (Dunning, 1993) offer some insight into the ... ble pairs of firms within a given geographic area) will vary significantly. Considered from a ...
R ecent research has shown that managers in publicly traded companies facing earnings pressure-th... more R ecent research has shown that managers in publicly traded companies facing earnings pressure-the pressure to meet or beat securities analysts' earnings forecasts-may make business decisions to improve short-term earnings. Analysts' forward-looking performance forecasts can serve as powerful motivation for managers, but may also encourage them to undertake short-term actions detrimental to future competitiveness and performance. To identify whether managerial reactions to earnings pressure suggest evidence of intertemporal trade-offs, we explored how companies respond to earnings pressure under different conditions of corporate governance that shape the temporal orientations of managers. Using data on competitive decisions made by U.S. airlines under quarterly earnings pressure, we examined the effect of earnings pressure on competitive behavior under different ownership structures (ownership by long-term dedicated investors versus transient investors) and CEO incentives (unvested incentives that are restricted or unexercisable in the short term, versus vested incentives). The results suggest that companies with more long-term-oriented investors and long-term-aligned CEOs with unvested incentives are less likely to soften competitive behavior in response to earnings pressure, relative to companies with transient investors and CEOs with vested, immediately exercisable stock-based incentives. Using a difference-indifferences (DiD) specification for stronger identification, we also found that firms respond to their rivals' earnings pressure shocks by increasing capacity and prices, particularly when those rivals do not have long-term-oriented investors and CEO incentives. The evidence is more aligned with the view that the pursuit of short-term earnings as a result of earnings pressure may be detrimental to long-term competitiveness.
Abstract This paper focuses on the nascent entrepreneurial process from an identity-based perspec... more Abstract This paper focuses on the nascent entrepreneurial process from an identity-based perspective. We build on research in the role identity, entrepreneurship, and career literature to develop a multi-dimensional concept of entrepreneurial identity. We link entrepreneurial ...
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Papers by Javier Gimeno