Multimarket Contact and Rivalry over Knowledge‐based Resources
| Date | 01 December 2017 |
| DOI | http://doi.org/10.1002/smj.2676 |
| Author | Matt Theeke,Hun Lee |
| Published date | 01 December 2017 |
Strategic Management Journal
Strat. Mgmt. J.,38: 2508–2531 (2017)
Published online EarlyView 25 July 2017 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2676
Received 9 September 2015;Final revision received31 January 2017
Multimarket Contact and Rivalry over
Knowledge-based Resources
Matt Theeke*and Hun Lee
School of Business, George Mason University, Fairfax, Virginia
Research summary: Research shows that multimarket contact (MMC) reduces rivalry involving
downstream activities. Yet,studies showing that MMC can increase the threat of imitation suggest
a need to better understand how MMC affects upstream rivalry over knowledge-based resources.
In this study, we argue that MMC increases rivalry over knowledge-based resources since the
deterrent threat of retaliation that typicallyleads to mutual forbearance in downstream activities
will not be sufcient to restrain rms fromprotecting their knowledge from imitation in upstream
activities. In support of these arguments we nd that MMC increases the likelihood that a rm
initiates patent litigation against a rival. This study suggests the relationship between MMC and
rivalry may depend on the competitive domain and the type of resources over which rms are
competing.
Managerial Summary: How does market overlap or MMC affect rivalry between two competi-
tors? Prior studies have largely found that an increasein market overlap decreases rivalry in less
knowledge-intensive context because of the deterrent threatof retaliation. However, in this paper,
we argue that an increase in market overlap may not reducerivalry in more knowledge-intensive
context because of heterogeneity in capabilities to protect knowledge. We nd that a rm is more
likely to initiate patent litigation against a rival as market overlap increases. Our ndings suggest
that the incentive to protect value across multiple product markets may surpass the motivation to
cooperate with rivals and that managers should have a morenuanced view of how market overlap
with competitors affects rivalry in more knowledge-intensive contexts. Copyright © 2017 John
Wiley & Sons, Ltd.
Knowledge-based resources play an important role
for rms in creating a competitive advantage(Grant,
1996; Ndofor, Sirmon, & He, 2011). To achieve
competitive advantage from their knowledge, rms
need to both create valuable innovations (McEvily
& Chakravarthy,2002; Nelson & Winter, 1982) and
protect the value of their knowledge when compet-
ing against rival rms (Giarratana & Mariani, 2014;
Liebeskind, 1996; Teece, 1986). This competition
often occurs across multiple markets, increasing
Keywords: multimarket contact; rivalry;knowledge-based
resources; patent litigation; competitive dynamics
*Correspondence to: Matt Theeke, School of Business, George
Mason University,4400 University Drive, MSN 5F5, Fairfax, VA
22030. E-mail: mtheeke@gmu.edu
Copyright © 2017 John Wiley & Sons, Ltd.
multimarket contact (MMC) with rival rms (Fuen-
telsaz & Gómez, 2006; Li & Greenwood, 2004).
Prior research on MMC has largely shown that
rms can benet from less intense rivalry as market
overlap increases between two competitors— the
mutual forbearance hypothesis (Edwards, 1955;
Jayachandran, Gimeno, & Varadarajan, 1999; Korn
& Baum, 1999; Yu & Cannella, 2013). In par-
ticular, prior studies emphasize the benets of
reduced rivalry associated with MMC involving
downstream activities such as new product and
pricing actions (Kang, Bayus, & Balasubramanian,
2010; Young, Smith, Grimm, & Simon, 2000) and
market entry and exit decisions (Haveman & Non-
nemaker, 2000; Korn & Baum, 1999). However,
Multimarket Contact and Rivalry 2509
other research suggests that competition can also
encompass upstream activities related to rms’
resources (Barney, 1986; Bergen & Peteraf, 2002;
Capron & Chatain, 2008; Markman, Gianiodis, &
Buchholtz, 2009). Upstream rivalry often entails
higher uncertainty than downstream rivalry, since
activities such as R&D rely on extensive search
and exploration (March, 1991; Nelson & Win-
ter, 1982). Moreover, recent research suggests that
MMC heightens the threat of imitation that rms
experience from rivals (Lieberman & Asaba, 2006),
and studies show that MMC increases patenting
(Greve & Mitsuhashi, 2004) and the extent to which
rival rms build on one another’s knowledge (Cas-
sidy & Loree, 2001; Scott, 2001).
These studies suggest the possibility that rms
face a tension on the one hand to leverage knowl-
edge across multiple markets but on the other
hand to protect the value of their knowledge from
multimarket rivals. In other words, a rm’s ability
to fully leverage the value from knowledge-based
resources may result in increasing MMC with
rival rms, which can expose knowledge-based
resources to an increased threat of imitation. Hence,
MMC encourages rms to be less rivalrous with
downstream activities but more rivalrous with
upstream activities to protect knowledge-based
resources. Extant research on MMC has not
fully addressed this tension or examined how
MMC affects the decision to protect a rm’s
knowledge-based resources from rivals.
With the goal of exploring this tension, this cur-
rent study develops theory about how MMC affects
rivalry over knowledge-based resources involving
patent litigation. Because MMC increases the threat
of imitation (Lieberman & Asaba, 2006) at the
same time that heterogeneity exists in rivals’ abil-
ity to protect their knowledge (Clarkson & Toh,
2010; Teece, 1986), we argue that the motiva-
tion to protect knowledge will tend to outweigh
the deterrent effect of retaliation by the rival.
Accordingly, we propose that the mutual forbear-
ance effect arising from the threat of retaliation
by a rival rm will not occur as MMC pushes
rms to protect knowledge-based resources. To
increase condence in our causal mechanisms, we
develop contingencies related to: (a) a rm’s moti-
vation to protect knowledge and (b) the deterrent
effect of retaliation by a rival. Hence, we argue
that the technological quality of the rm’s knowl-
edge and the rival’s ability to protect its knowl-
edge will respectively exacerbate and attenuate the
positive relationship between MMC and knowledge
protection.
This study adds new insights about the relation-
ship between MMC and mutual forbearance by
showing that this relationship may depend on the
competitive domain and the nature of the resources
over which rms are competing. In doing so, we
add to prior studies that have begun to unpack the
boundary conditions affecting the MMC– mutual
forbearance relationship (Yu & Cannella, 2013) by
examining factors such as market entry character-
istics (Fan, 2010), the observability of strategies
(Greve, 2008), and international market charac-
teristics (Yu, Subramaniam, & Cannella, 2009).
While we do not question the traditional mutual
forbearance hypothesis found in downstream
activities and in less knowledge-intensive contexts,
we suggest a more nuanced relationship depend-
ing on the domain. More specically, we argue
that rms may become more protective of their
knowledge-based resources in upstream activities
and in more knowledge-based contexts and that
MMC may lead to increasing rivalrous behavior.
This study also contributes to strategy research
on the defensive strategies that rms use to pro-
tect proprietary technological assets. Studies have
made important strides advancing understanding
of organizational and technological antecedents of
knowledge protection efforts (e.g., Hall & Ziedo-
nis, 2007; Lanjouw & Schankerman, 2001; Poli-
doro & Toh, 2011) and about the deterrent role
that a rm’s reputation for protecting its resources
plays in mitigating the leakage of knowledge and
the loss of employees (Agarwal, Ganco, & Ziedo-
nis, 2009; Ganco, Ziedonis, & Agarwal, 2015). We
show that MMC between rival rms may be another
important determinant of a rm’s decision to pro-
tect its knowledge-based resources. Furthermore,
we also contribute to the resource base theory and
competitive dynamics literature by developing the-
ory about how downstream market contact between
rivals shapes rms’ subsequent upstream competi-
tive interactions in factor markets. We elaborate on
these contributions in the discussion section.
Theory and Hypotheses
Multimarket contact (MMC), which is essentially
the extent of market overlap between two rms,
has been shown to affect the intensity of rivalry
Copyright © 2017 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 2508–2531 (2017)
DOI: 10.1002/smj
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