The predictive validity of the Karnani and Wernerfelt model of multipoint competition

Abstract

This study is the first to examine the predictive validity of the Karnani and Wernerfelt theoretical model. We developed measures for four variables, and explored whether they successfully operationalized the dimensions in the theoretical model. The model proposed four response strategies, and six were observed in the data. Incumbent firms most frequently did not respond at all to another firm's entry, even though a counterattack response was predicted by the model. Since the independent variables did not predict responses as proposed by the model, exploratory analyses identified “best” predictors of responses.

Multimarket Contact and Resource Dissimilarity: A Competitive Dynamics Perspective

“…Firms can compete in multiple markets within an industry or they can compete in a single market. The positioning of a firm across multiple markets within an industry can be an important determinant of its competitive behavior (Barnett, 1993;Baum & Singh, 1994;Evans & Kessides, 1994;Feinberg, 1984;Gimeno & Woo, 1996;Porter, 1980;Smith & Wilson, 1995).…”

Understanding distributor opportunism in a horizontal network

“…In contrast, cooperation is the ideal interaction process, which is developed when individuals, groups and organizations attain a common interest and objective (Melé, 2009;Smith & Wilson, 1995). When the distributors are cooperative, they will work together to obtain the supplier's resources as well as to share the costs and benefits, while they maintain a separate identity and legal status (Trapido, 2007).…”

Rivalry and Forbearance in the European Airline Industry: Evidence of an Inverted U-Shaped Competitive Pattern1

“…Indeed, Smith and Wilson (1995) found that 67% of the incumbents under attack did not respond, 9% went for total war, a total of 76% for the two least expected responses. Partial retaliation, the response most highly expected occurred in 15% of cases only and defense on the home territory 5%.…”

“…Their strategic moves follow the most likely response on one or several territories of the attacker predicted by Karnani and Wernerfelt (1985) and recommended by Hamel and Prahalad (1985). The concept of spheres of influence (Gimeno, 1999) proves to be a better predictor of rivalry and forbearance than industry characteristics (Smith and Wilson, 1995).…”

“…Undertaking tests of complex models such as those coined by Karnani and Wernerfelt (1985) or Chen (1996) is quite challenging, especially that initial attempts were disappointing (Smith and Wilson, 1995). Indeed, early testing of the linear effects of multimarket competition on rivalry and performance in the empirical settings of the US airline industry (Sandler, 1988) and the US financial services industry (Alexander, 1985;Rhoades & Haggestad, 1985;Mester, 1987) revealed that the magnitude of such effects are non-significant.…”