Behemoths at the Gate: How Incumbents Take on Acquisitive Entrants (and Why Some Do Better than Others)

Journal of Marketing, Vol. 75, pp. 53-70, 2011

Mays Business School Research Paper No. 2012-29

20 Pages Posted: 2 Feb 2012

See all articles by Prokriti Mukherji

Prokriti Mukherji

Independent

Alina Sorescu

Texas A&M University - Department of Marketing

Jaideep Prabhu

University of Cambridge - Judge Business School; Imperial College Business School

Rajesh K. Chandy

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: September 1, 2011

Abstract

Corporate acquisitions are a ubiquitous feature of today’s business landscape and a widely used means by which large firms enter new markets. As large acquirers swoop in to acquire firms in new markets, they are almost inevitably met with a chorus of concerns about the potential effects of their actions on the markets they enter. What is the actual impact of acquisitive entry by large firms on the strategies and performance of incumbents? How do incumbents reconfigure the way they compete after a behemoth enters their market? The authors focus on an important facet of firms’ competitive positions — their product mix — and propose a framework that explains incumbent firms’ reaction to acquisitive entry by large firms, as well as the performance implications of these reactions. They test the hypotheses that result from this framework by examining the impact of acquisitive entry across a large number of firms and consumer markets over time: The data cover 839 acquisitions in 583 metropolitan statistical areas in the U.S. banking industry. The results indicate that incumbents are more likely to align their product mix strategy with that of the acquisitive entrant if (1) the incumbent is large, (2) the acquirer’s past performance has been strong, and (3) the market served by the incumbent is small. Importantly, how incumbents react has significant performance implications: The authors find that large incumbents that deviate from acquirers’ product mix strategy perform better than other incumbents do.

Keywords: market entry, competitive reaction, product mix strategy, acquisitions, strategic aspirations

Suggested Citation

Mukherji, Prokriti and Sorescu, Alina and Prabhu, Jaideep and Chandy, Rajesh K., Behemoths at the Gate: How Incumbents Take on Acquisitive Entrants (and Why Some Do Better than Others) (September 1, 2011). Journal of Marketing, Vol. 75, pp. 53-70, 2011 ; Mays Business School Research Paper No. 2012-29. Available at SSRN: https://ssrn.com/abstract=1997217

Prokriti Mukherji (Contact Author)

Independent

No Address Available

Alina Sorescu

Texas A&M University - Department of Marketing ( email )

430 Wehner
College Station, TX 77843-4218
United States

Jaideep Prabhu

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 20 7594 9109 (Phone)
+44 20 7823 7685 (Fax)

Rajesh K. Chandy

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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