Paralyzing or Activating? Market Shocks and their Effects on Interfirm Rivalry

This study investigates how market shocks impact interfirm rivalry. Based on competitive dynamics research and imitation theory, we propose that market shocks upset the rivalrous process among firms. We argue that market shocks give rise to new competitive opportunities, challenge extant mutual forbearance equilibria, and make managers detach from rivals' extant competitive behaviors when contemplating own moves. To validate our arguments, we investigate with duration models how market shocks punctuate patterns in firm action sequences. Our study is set in the global insurance industry between 2001 and 2007 and explores the effects the terrorist attacks of September 11 and Hurricane Katrina had on the industry's interfirm rivalry in 2001 and 2005. The study's findings highlight a clear need for a stronger integration of the environmental context in competitive dynamics research.