The Effects of Self-Reinforcing Mechanisms on Firm Performance

Abstract

This study empirically investigates the influence of the market-bound (i.e., interaction and network effects) on the firm-bound (i.e., scale and learning effects) self-reinforcing mechanisms, and their combined effect on product and organizational performance. The findings from a sample of 257 manufacturing firms reveal that interaction effects have a positive effect on network effects. Network effects have a positive impact on the potential for firms to realize scale and learning effects, which in turn, is positively related to their actual realization of these effects. The actual realization of scale and learning effects has a positive effect on product performance, which in turn positively influences organizational performance. These effects are robust across industries and provide ample opportunities for future research.

Keywords: self-reinforcing mechanisms, increasing returns, management, economics

JEL Classification: M, M31, C44, D21