Time delays, competitive interdependence, and firm performance
| Date | 01 March 2017 |
| Author | Henrikki Tikkanen,Sampsa Ruutu,Jukka Luoma,Adelaide Wilcox King |
| Published date | 01 March 2017 |
| DOI | http://doi.org/10.1002/smj.2512 |
Strategic Management Journal
Strat. Mgmt. J.,38: 506–525 (2017)
Published online EarlyView 20 April 2016 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2512
Received 4 November 2013;Final revisionreceived 20 January 2016
TIME DELAYS, COMPETITIVE INTERDEPENDENCE,
AND FIRM PERFORMANCE
JUKKA LUOMA,1*SAMPSA RUUTU,2ADELAIDE WILCOX KING,3and
HENRIKKI TIKKANEN1,4
1Department of Marketing, Aalto University School of Business, Helsinki, Finland
2Business Ecosystems, Value Chains, Foresight, VTT Technical Research Centre,
Espoo, Finland
3McIntire School of Commerce, University of Virginia, Charlottesville, Virginia,
U.S.A.
4Stockholm Business School, Stockholm University, Stockholm, Sweden
Research summary: Competitors’ experiences of prior interactions shape patterns of rivalry over
time. However, mechanisms that inuence learning from competitive experience remain largely
unexamined. We develop a computational model of dyadicrivalry to examine how time delays in
competitors’ feedback inuence their learning. Time delays are inevitable because the process
of executing competitive moves takes time, and the market’s responses unfold gradually. We
analyze how these lags impact learning and, subsequently, rms’ competitive behavior, industry
prots, and performance heterogeneity. In line with the extant learning literature, our ndings
reveal that time delays hinderlearning from experience. However,this counterintuitively increases
rivals’ prots by reducing their investmentsin costly head-to-head competition. Time delays also
engender performance heterogeneity by causing rivals’ paths of competitive behavior to diverge.
Managerial summary: While competitive actions such as new product launches, geographical
expansion, and marketing campaigns require up-front resource commitments, the potential lift
in prots takes time to materialize. This time delay, combined with uncertainty surrounding the
outcomes of competitive actions, makes it difcult for managers to learn reliably from previous
investment decisions. This results in systematic underinvestment in competitive actions. The
severity of the underinvestment grows as the time delay between an investment and its positive
results increases. Counterintuitively, however, competitors’ collective underinvestment increases
prot-making opportunities. In industries with large time delays, companies that do invest in
competitive actions are likely to enjoy high returns on investment. It is also likely that rivals’
paths of competitive behavior bifurcate. Together, these mechanisms generatelarge differences in
competitors’ prots. Copyright © 2016 John Wiley& Sons, Ltd.
INTRODUCTION
Competitive dynamics researchers often adopt a
behavioral perspective (e.g., Chen etal., 2010a;
Hsieh, Tsai, and Chen, 2014; Kilduff, Elfenbein,
Keywords: competitive dynamics; time delays; perfor-
mance heterogeneity; behavioral strategy; reinforcement
learning
*Correspondence to: Jukka Luoma, Department of Marketing,
Aalto University School of Business, P.O. Box 21230, 00076
Aalto, Finland. E-mail: jukka.luoma@aalto.
Copyright © 2016 John Wiley & Sons, Ltd.
and Staw, 2010; Marcel, Barr,and Duhaime, 2010),
recognizing that managers must make decisions
concerning rivalry in the absence of a clear under-
standing of how their rm’s competitive actions
translate into performance outcomes. This lack of
clarity prohibits treating competition as a mere opti-
mization problem and motivates managers to base
their decisions on the outcomes of earlier choices
(Cyert and March, 1992; Lamberg et al., 2009). As
learning from prior experiences can inuence man-
agers’ decisions, identifying factors that affect the
Time Delays and Competitive Interdependence 507
process of learning from experience can help under-
stand how competitive interaction patterns form
over time (Chen and Miller,2012). This can, in turn,
facilitate addressing fundamental questions in strat-
egy such as how and why performance differences
emerge among rms.
Building on this insight, we examine time delays
in interrm rivalry as an antecedent of differences
in industry protability and performance hetero-
geneity among competitors. Time delays have inter-
ested competitive dynamics scholars for the entirety
of the eld’s existence (e.g., MacMillan, McCaf-
fery, and Van Wijk, 1985), and such delays are a
natural focus of inquiry for studying the factors
that affect learning in rivalry. Scholars recognize
that time is needed to execute competitive actions
(Chen and Hambrick, 1995; Miller and Chen, 1994)
and to realize the results of these actions (Bridoux,
Smith, and Grimm, 2013). Such time delays can
affect rm performance. For example, research has
demonstrated that slow competitors are usually at
a disadvantage in capturing contested opportunities
(e.g., Boyd and Bresser, 2008; Chen and Hambrick,
1995; Ferrier, 2001; Hawk, Pacheco-De-Almeida,
and Yeung,2013; Miller and Chen, 1994). However,
to date, research has focused on the immediate eco-
nomic consequences of time delays. The effects of
time delays on longitudinal patterns of competitive
interaction have not been systematically studied.
We employ computational modeling to uncover
how time delays shape rivalrybeyond the short term
by inuencing managers’ learning from previous
competitive interactions. Our ndings are consistent
with the existing literature on learning in showing
that time delays hinder learning from experience
(Rahmandad, Repenning, and Sterman, 2009; Ster-
man et al., 2007). In particular, time delays reduce
the perceived reward of investing in competitive
actions, causing companies to underuse them. How-
ever, this effect may counterintuitively enhance
competitors’ performance because, at a collective
level, time delays cause rms to invest less in
costly head-to-head competition. The positive per-
formance effect of time delays has gone unnoticed
to date because prior research on time delays in
learning has not considered the impact of com-
petitors’ decisions on a focal rm’s performance
(e.g., Rahmandad, 2008; cf., Katila and Chen,
2008). We also show how the impact of time delays
on learning fosters performance heterogeneity by
causing rivals’ behavioral trajectories to diverge.
Overall, our study establishes time delays rmly
alongside other explanations of industry prots and
performance heterogeneity (e.g., Lenox, Rockart,
and Lewin, 2010). The paper also advances our
understanding of how micro-level behavioralmech-
anisms shape macro-level patterns of competitive
interaction over time (e.g., Chen and Miller, 2012).
THEORETICAL BACKGROUND
Our study investigates the phenomenon of interrm
rivalry, which is a fundamental issue in strategic
management. In line with the literature on compet-
itive dynamics (Chen and Miller, 2012: 137), we
conceptualize interrm rivalry as a series of com-
petitive actions and interactions. In this study, com-
petitive actions are dened as product market moves
that aim to increase the attractiveness of a rm’s
offerings in the eyes of customers relative to com-
petitors’ products and services (Miller and Chen,
1994). Such actions might include product intro-
ductions that provide new benets to customers,
geographical expansion initiatives that bring a rm
closer to customers, or marketing campaigns that
build a favorable brand image.
The competitive moves that rivals make today
hinge on their history of previous competitive
encounters (e.g., Kilduff et al., 2010), as rms’
previous competitive experiences of past success
shape their current decision making (Lamberg et al.,
2009). Any factor that inuences rms’ learning
from experience may have indirect butcumulatively
signicant implications for how and what compet-
itive interaction patterns emerge. We propose that
time delays are one such factor with the potential to
shape rivalry over repeated competitiveinteractions
by affecting managers’ learning from experience.
The strategic signicance of time is well estab-
lished in the competitive dynamics literature
(Ferrier, 2001). Scholars have investigated, for
example, how lags in competitive responses (Boyd
and Bresser, 2008), in the speed of decision making
(Eisenhardt, 1989), and in the temporal spacing
of actions (Laamanen and Keil, 2008), as well as
inertia in “altering [a] competitive stand” (Miller
and Chen, 1994: 2), affect the performance of
competing rms. Scholars also recognize that the
full performance consequences of competitive
actions do not materialize immediately and that
there can be differences in the speed at which dif-
ferent competitive moves affect rm performance
(Bridoux et al., 2013).
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 506–525 (2017)
DOI: 10.1002/smj
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