Following or Running Away from the Market Leader? The Influences of Environmental Uncertainty and Market Leadership

19 Pages Posted: 26 Nov 2018

See all articles by Claudio Giachetti

Claudio Giachetti

Ca Foscari University of Venice; Ca' Foscari University of Venice

Salvatore Torrisi

Department of Economics, Management and Statistics; Bocconi University

Date Written: Autumn (Fall) 2018

Abstract

Competitive dynamics theory suggests that rival firms imitate other competing firms with similar resources to maintain competitive parity while are likely to differentiate from the market leader to avoid its dangerous retaliation. According to neo‐institutional theory, in highly uncertain environments, rivals are likely to imitate the market leader because they assume it possesses superior market knowledge. Combining these two lines of argument, we argue that a rival's decision whether to follow or run away from the market leader depends on environmental uncertainty and market leadership, the latter expressing the extent to which the market leader owns a larger market share vis‐à‐vis the other rivals. The empirical analysis relies on data about the product line strategies of 66 mobile phone vendors in the 1994–2010 period. The results show that when environmental uncertainty is low, the relationship between a firm's market leadership and imitation by its rivals is negative, whereas in conditions of high environmental uncertainty, imitation of the market leader increases with its market leadership.

Keywords: Imitation, competitive dynamics, product innovation, environmental uncertainty, market leadership, mobile phone industry

Suggested Citation

Giachetti, Claudio and Giachetti, Claudio and Torrisi, Salvatore, Following or Running Away from the Market Leader? The Influences of Environmental Uncertainty and Market Leadership (Autumn (Fall) 2018). European Management Review, Vol. 15, Issue 3, pp. 445-463, 2018, Available at SSRN: https://ssrn.com/abstract=3289701 or http://dx.doi.org/10.1111/emre.12130

Claudio Giachetti (Contact Author)

Ca Foscari University of Venice

Dorsoduro 3246
Venice, Veneto 30123
Italy

Ca' Foscari University of Venice

Dorsoduro 3246
Venice, Veneto 30123
Italy

Salvatore Torrisi

Department of Economics, Management and Statistics ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, Milan 20126
Italy

HOME PAGE: http://https://www.unimib.it/salvatore-torrisi

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

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