Product Customization and Firm Survival: A Longitudinal Study of Laser and Related Industries

54 Pages Posted: 30 Nov 2012 Last revised: 2 Dec 2013

See all articles by Ajay Bhaskarabhatla

Ajay Bhaskarabhatla

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management

Date Written: November 30, 2013

Abstract

This research investigates the impact of product customization activity on firm survival. Using unique data on laser and 12 related industries between 1997 and 2009, I examine whether, as the submarkets model of industry evolution suggests, firms that undertake product customization activity survive longer. The findings show that, while product customization does enhance firm survival, it does so through two distinct channels. First, as the submarkets model captures, product customization leads to better survival through developing new submarkets, which I call the pioneering effect. Second, product customization intensity at the submarket-level has a deterrent effect on entry, which is associated with an additional survival premium not captured in the submarkets model. The results are robust to alternative explanations such as survival premium from multimarket contact and mutual forbearance. According to one interpretation of the results greater exploratory search for submarkets by firms already present in the industry lowers subsequent entry into the industry. While prior research has modeled the within-firm tradeoff between exploration and exploitation, the results suggest that important industry-level dynamic, indirect effects may have been neglected. According to another interpretation of the results, such dynamic effects lower conformist and imitative entry.

Keywords: Product Customization, Submarket Pioneering, Entry Deterrence, Industry Evolution, Exploration-Exploitation

JEL Classification: O31, L10, L63

Suggested Citation

Bhaskarabhatla, Ajay, Product Customization and Firm Survival: A Longitudinal Study of Laser and Related Industries (November 30, 2013). Available at SSRN: https://ssrn.com/abstract=2183211 or http://dx.doi.org/10.2139/ssrn.2183211

Ajay Bhaskarabhatla (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 408 1004 (Phone)

HOME PAGE: http://people.few.eur.nl/bhaskarabhatla/

Erasmus Research Institute of Management ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1004 (Phone)

HOME PAGE: http://www.erim.eur.nl/people/ajay-bhaskarabhatla/

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