How does institutional change affect heterogeneity among firms?

Abstract

This paper examines the variation in performance of incumbents and entrants following the deregulation of prices and entry in the airline industry. Our approach is similar to earlier studies of interfirm performance heterogeneity across industries. Drawing on theories of industry evolution, we hypothesize that the performance of entrants will have higher variance than incumbents. Further, given the opportunities offered by price deregulation, we propose that incumbents will have higher variance in performance under deregulation than in the earlier regime. The findings indicate that entrant performance heterogeneity is significantly greater than incumbent performance heterogeneity following deregulation, but that the variation in performance among incumbents does not significantly change when deregulation occurs. The second result is surprising given the range of service and process innovations that incumbents initiated. These results suggest that the distinction between entrants and incumbents is critical to future studies of performance variation within and across industries. Copyright © 2002 John Wiley & Sons, Ltd.

A theory of change in turbulent environments: the sequencing of dynamic capabilities following industry deregulation

“…Through environmental scanning, managers can better identify external changes, which then become inputs for strategic decisions about new resource needs and capability development efforts to address these changes. As new firms enter the industry and the heterogeneity of strategies and practices increase (Walker, Madsen and Carini 2002), incumbent firms must learn to be alert to these changes. Systematic external scanning as a planned learning activity involves dedication of time and attention to external monitoring (Winter 2000).…”

“…Strategic industry factors are determined at the market level through interactions between the firm and its customers, competitors, regulators, investment banks and other firm stakeholders (Amit and Shoemaker 1993). The new entrants to the industry, in particular, can exert strong influence on strategic industry factors through introduction of innovative practices that reduce costs and improve product and service quality (Walker, Madsen, and Carini 2002). As strategic industry factors change and evolve over time, firms and their capabilities must also change especially if the new environment involves rapid shifts and developments in technology (Miles and Snow 1978).…”

“…In regulated environments, the regulatory agency requires compliance in terms of internal processes such as R&D, process improvements, and improvements in infrastructure (Mahon and Murray 1981). For a firm to compete effectively in a deregulated environment, these processes need to be redeveloped and aimed towards identifying current weaknesses (e.g., inefficient and noncompetitive practices) and needs for renewal of the resource and capability bundle (Helfat 1994, Walker, Madsen, andCarini 2002). By identifying and evaluating its knowledge bases and unique capabilities, a firm will have a greater likelihood of developing new resource configurations and market positions that capitalizes on its unique strengths.…”

Factors that Influence the Effectiveness of Russian Telecommunication Companies

“…Abrhám et al, 2015), while others argue that capital investments of one telecommunication firm will induce imitations of other firms and create so called Red Queen effect. In this case the overall effect of investment on productivity will be weakened (Barnett and McKendrick, 2004;Walker et al, 2002). On the other hand, Gruber (2001) finds out, that the capital investment of all the players improves combined network capacity of all operators because of efficient use of wireless spectrum and leads to increased productivity of all competitors.…”

“…On one hand, in competitive environment investments in technology of one firm are subject to imitation and innovations by other players, which creates so called Red Queen effect and reduces the effect of investments on profitability and competitive advantage of the first investing firm (Barnett and McKendrick, 2004;Walker et al, 2002). On the other hand, Banker (2013) found out, that the association of investment and profitability is positive in the future (after six quarters).…”