Responses to rival exit: Product variety, market expansion, and preexisting market structure

• 成果类型: Article
• 署名作者: Ren, Charlotte R.; Hu, Ye; Cui, Tony H.
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Temple University; University of Houston System; University of Houston; University of Minnesota System; University of Minnesota Twin Cities
• 刊物名称: STRATEGIC MANAGEMENT JOURNAL
• ISSN/ISSBN: 0143-2095
• DOI: 10.1002/smj.2970
• 发表日期: 2019
• 页码: 253-276
• 关键词: incumbent responses; market expansion; market structure; product variety; rival exit

摘要

Research Summary This study investigates incumbent responses to a main rival's exit. We argue that long-time rivals have developed an equilibrium by offering a mix of overlapping and unique products and by choosing geographic proximity to each other. A rival's exit, however, disrupts this equilibrium and motivates surviving firms to expand in both product and geographic spaces to seek a new equilibrium. Using data from all U.S. Best Buy stores before and after the exit of Circuit City, we find that Best Buy uses product variety expansion as its major response in markets where Circuit City was colocated, but it more often responds by opening new stores in non-colocated markets. Regardless of preexisting market structures, the magnitude of product variety expansion decreases with the opening of new stores. Managerial Summary How do surviving firms respond to a major rival's exit? By studying Best Buy's responses to Circuit City's withdrawal, we find the survivor expands in both product space (increasing product variety) and geographic space (opening new stores), due to two motives. First, the survivor strives to fill in holes left in the market. Second, the survivor experiences uncertainty in the postexit world wherein its reference point is gone, threat of potential entry looms, and it lacks information about new entrants. Thus, it must deter potential entry ex ante by preempting many prime product and geographic locations. Best Buy also responds according to preexisting market structures, primarily through product variety expansion in markets wherein Circuit City was colocated and through opening new stores in non-colocated markets.