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COMPETITION PERCEPTION INDEX The psychology of rivalry

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COMPETITION PERCEPTION INDEX. The psychology of rivalry. Ron Kemp (EIM / Universiteit Wageningen) ... Contract research for the Dutch Ministry of Economic Affairs ... – PowerPoint PPT presentation

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Title: COMPETITION PERCEPTION INDEX The psychology of rivalry


1
COMPETITION PERCEPTION INDEX The psychology of
rivalry
  • Ron Kemp
  • (EIM / Universiteit Wageningen)
  • Arjen van Witteloostuijn
  • (Rijksuniversiteit Groningen / University of
    Durham)

2
BACKGROUND
  • Contract research for the Dutch Ministry of
    Economic Affairs
  • Goal development of a CPI (à la producer
    confidence)
  • Instrument questionnaire
  • Approach from broad to narrow
  • Later short standard questionnaire
  • Committee of experts
  • Today preliminary interim report

3
ECONOMICS AND PSYCHOLOGY
  • Experimental Economics
  • Behavioral Finance
  • Decision Theory
  • Consumer Behavior
  • Personnel Economics
  • …

4
PSYCHOLOGY OF RIVALRY
  • PD experiments
  • TMT studies
  • Managerial perceptions
  • Managerial economics
  • Delegation games
  • …
  • Toward a humanized Industrial Organization?

5
SIX LITERATURE EXAMPLES
  • Fornell, C., M.D. Johnson, E.W. Anderson, J. Cha
    B.E. Bryant (1996) The American Customer
    Satisfaction Index nature, purpose, and
    findings. Journal of Marketing 60 7-18.
  • Greve, H.R. (1998) Managerial cognition and the
    mimetic adoption of market positions what you
    see is what you do. Strategic Management Journal
    19 967-988.
  • Heijltjes, M. A. van Witteloostuijn (2003)
    Configurations of market environments.
    competitive strategies. manufacturing
    technologies and human resource management
    policies a two-industry and two-country analysis
    of fit. Scandinavian Journal of Management 19
    31-62.
  • Pecotich, A., J. Hattie L.P. Low (1999)
    Development of Industruct a scale for the
    measurement of perceptions of industry structure.
    Marketing Letters 10 409-422.
  • Porac, J.F., H. Thomas, F. Wilson, D. Paton A.
    Kanfer (1995) Rivalry and the industry model of
    Scottish knitwear producers. Administrative
    Science Quarterly 40 203-227.
  • Spanos, Y. S. Lioukas (2001) An examination
    into the causal logic of rent generation
    contrasting Porters competitive strategy
    framework and the resource-based perspective.
    Strategic Management Journal 22 907-934.

6
COMPETITION PERCEPTION INDEX (CPI)
  • Industrial Organization
  • (SCP paradigm)
  • Competition perception index TMT perception
    studies
  • (Questionnaire instrument) (Upper-echelon
    literature)
  • Strategic Management
  • (Five-forces model)

7
SO WHAT?
  • Leading indicator
  • Policy effectiveness
  • Monitoring instrument
  • Intra-industry heterogeneity
  • Forces desaggregation
  • Rules-of-the-game indeterminism
  • Onobservable variables
  • Causality chain
  • Managerial psychology
  • Organizational features

8
RESEARCH DESIGN
  • Literature overview
  • Theoretical framework
  • Four industries
  • Questionnaire development
  • Questionnaire mail ( 4000)
  • Response increase ( 270 on April 2)
  • Simple preliminary analyses (today)
  • Advanced model estimations (later)
  • CPI proposal

9
  • Motivation
  • to react
  • Importance market
  • Exit costs
  • Price elasticities

Expected competitive environment - Six forces
Interpretation competitive environment - Six
forces
  • Performance
  • Goal hierarchy
  • Return ratios
  • Profitability
  • Growth
  • Competitive
  • action
  • Instrument
  • Aggressiveness
  • Speed

Perceived competitive environment - Six forces
  • Possibility
  • to respond
  • Competitive advantages
  • Resources
  • Capabilities
  • Control variables
  • Respondent features
  • Organizational features
  • Industry features

10
FOUR INDUSTRIES
11
A QUESTIONNAIRE
  • Large tryout later selection on the basis of
    analyses
  • Steppingstone Porterian five-forces framework
  • Extensions (from industrial and institutional
    economics)
  • Sixth force institutional influence
  • Source of inspiration management literature
  • Incorporation of validated questionnaire
    (sub)scales
  • Introduction of control variables
  • Revised after expert meetings and pilot
    interviews
  • Benchmarking traditional competition measures

12
FIVE-FORCES FRAMEWORK
  • Customer power
  • Entry Incumbent rivalry
    Substitutes
  • threat threat

  • Supplier power

13
IMPORTANCE ITEM EXAMPLES (Five per force)
  • In our market, much competition evolves around
    price decreases
  • In our market, suppliers have much power, which
    they indeed use
  • In our market, newcomers have to invest much in
    advertising or RD
  • In our market, we must deal with cheap
    substitutes
  • In our market, clients cannot switch easily to
    rival products or services
  • In our market, anti-trust law provides incentives
    to invest a lot
  • (Scores from 1 to 7)

14
ITEM WEIGHTS (Scores from 1 to 7)
  • How strongly does the following affect your
    profitability?
  • Entry by newcomers
  • Products/services from other industries
  • Bargaining power of suppliers
  • Bargaining power of clients
  • Extent of competition in your market
  • Law and regulation

15
SUBSCALES STRUCTURE (Factor analysis)
16
SUBSCALE RELIABILITY (Cronbachs a)
17
INDUSTRY DIFFERENCES (ANOVA analyses)
18
FORCES WEIGHTS (On the basis of six direct
questions)
19
RELATIVE WEIGHTS (Via division by sum score)
20
COMPETITION PERCEPTION (Weight importance)
21
CPI FORMULA (cf. Fornell et al. 1996)
22
COMPETITION PERCEPTION INDEX (Weighed mean 100)
23
CPI AND MARKET STRUCTURE (Example entry threat)
24
FUTURE RESEARCH
  • Step 1 Response increase
  • Step 2 Scale analyses
  • Step 3 Multivariate regressions
  • Step 4 CPI proposal
  • Step 5 Longitudinal measures
  • Step 6 Time series estimations

25
FIVE EXAMPLARY QUESTIONS
  • How is CPI variation associated with market
    structure features?
  • Which competitive forces particularly influence
    profitability?
  • To what extent is the CPI determined by
    organizational and respondent features?
  • What is the (compensating or strengthening)
    interaction between different competitive forces?
  • Are CPI scores (or subscales) leading for market
    structure changes?
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