An Examination of the Relation between Strategic Interaction Among Industry Firms and Firm Performance

50 Pages Posted: 17 Oct 2017

See all articles by Tumennasan Bayar

Tumennasan Bayar

Babson College

Marcia Millon Cornett

Bentley University - Department of Finance

Otgontsetseg Erhemjamts

University of San Francisco; Bentley University - Department of Finance

J. Tyler Leverty

University of Wisconsin - Madison

Hassan Tehranian

Boston College - Department of Finance

Date Written: September 15, 2017

Abstract

This paper examines the relation between the degree and type of strategic interaction among industry firms and firm performance. As a measure of firm performance, we use data envelopment analysis (DEA) to estimate the efficiency of a firm relative to the ‘best practice’ firms in its industry. We find that firms in industries with higher levels of strategic interaction are less efficient and the negative relation is more pronounced in industries where firms compete in strategic substitutes. This finding is consistent with the idea that there is significantly more cooperation (tacit collusion) under strategic complements than strategic substitutes. We also find that frontier efficiency methodology outperforms other measures of firm performance in explaining the relation between strategic interaction and firm performance.

Keywords: Industry Structure, Strategic Interaction, Strategic Complements, Strategic Substitutes, Firm Efficiency

JEL Classification: G10, G30, L11, L22, L25

Suggested Citation

Bayar, Tumennasan and Cornett, Marcia Millon and Erhemjamts, Otgontsetseg and Leverty, J. Tyler and Tehranian, Hassan, An Examination of the Relation between Strategic Interaction Among Industry Firms and Firm Performance (September 15, 2017). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3054540

Tumennasan Bayar

Babson College ( email )

231 Forest St.
Babson Park, MA 02457-0310
United States

Marcia Millon Cornett

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

Otgontsetseg Erhemjamts (Contact Author)

University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117
United States

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States
781-891-2823 (Phone)

J. Tyler Leverty

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Hassan Tehranian

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)

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