Competition in a Multimarket Environment: The Case of Market Exit

Item Type Journal paper
Abstract

Studies of competition typically have two underlying assumptions: that competition occurs within the boundaries of industries or markets and that all firms in a market or industry are affected equally by competitive pressures. The concept of multipoint competition challenges both assumptions. Multipoint theory addresses how different levels of contact between firms across multiple markets affect competition in individual markets. Its main argument is that high levels of contact between firms across markets will induce mutual forbearance, causing multipoint competitors to refrain from aggressively attacking each other.
The restraint stems from the fact that high levels of intermarket contact enable a firm to respond to an aggressive action by a multipoint rival in markets other than the one in which the action takes place. That possibility raises the potential costs of aggressive moves and serves as a credible deterrent, especially if a firm can respond in several markets. In addition, multipoint competition helps firms to interpret their rivals' intentions and signal their own, reducing the likelihood of costly misunderstandings.
The authors elaborate on those ideas to examine how a hospital's degree of intermarket contact with its competitors in a particular service market affects the likelihood that it will exit that market. They find that hospitals are less likely to exit markets in which they meet large numbers of their multipoint rivals. As a result of mutual forbearance, competitive rivalry is reduced across the markets that multipoint rivals share, lessening the types of pressures that typically prompt market exit. With lower levels of competitive rivalry, markets shared by multipoint rivals are relatively more hospitable environments in which to operate and are less likely to be exited. Rather than competing intensely, multipoint rivals appear to adopt a “live and let live” approach toward each other.
The fact that multipoint contact across markets may lessen competitive pressures within individual markets has implications for the contact between firms in several settings. Multimarket contact can occur across different product or service markets and also across different geographic markets, thus affording an intriguing perspective for the investigation of the rivalry between emerging transnational firms. True transnationals, by successfully integrating global operations while still addressing local market concerns, have been seen by some as having the capabilities necessary for successful performance in international competition. Perhaps transnational firms, because they have an integrated decision-making structure, can coordinate their actions to reduce competitive rivalry with each other across the markets they share. If so, markets dominated by transnationals may become more stable than the current state of international competition would predict.
Despite the extensive literature on top management team structure (demographics), disagreement persists as to whether specific aspects of team structure have, on the whole, positive or negative results for the firm. The author addresses conflicts in the literature by using several typical structural measures in different contexts.
Shorter-tenured, heterogenous teams are found to provide the skills needed to address environmental complexities and will be more productive in turbulent environments because they deliver problem solving skills and new perspectives on strategic formulation and implementation processes. Longer-tenured, homogeneous teams are found to be more productive in stable environments because they will promote basic team maintenance functions (socialization, cohesion, etc.). Firms that are the most successful financially are ones that match their team structures to the environmental context over time. The results reported are unique because time, different contexts, and financial performance were combined to assess the interaction of top management teams with their environments.
Surprisingly, the type of turbulence encountered in the firm's context may determine whether a specific element of team structure will be beneficial or detrimental to financial performance. Relatively high levels of constant environmental change require different team structures than unusual, disruptive change. Differences are discussed.
An important practical problem for many managers is finding alternative processes for performing a desired task, for example, one that is more efficient, cheaper, or that is automated or enhanced by the use of information technology. Improving processes also poses theoretical challenges. Coordination theory provides an approach to the study of processes. In this view, the design of a process depends on the coordination mechanisms chosen to manage dependencies among tasks and resources involved in the process.
In this paper, I use coordination theory to analyze the software change process of a large mini-computer manufacturer. Mechanisms analyzed include those for task assignment, resource sharing, and managing dependencies between modules of source code. For each, I suggest alternative mechanisms and thus alternative designs for the process. The organization assigned problem reports to engineers based on the module that appeared to be in error, since engineers only worked on particular modules. Alternative task assignment mechanisms include assignment to engineers based on workload or market-like bids. Modules of source code were not shared, but rather “owned” by one engineer, thus reducing the need for coordination. An alternative resource sharing mechanism would be needed to manage source code if multiple engineers could work on the same modules. Finally, engineers managed dependencies between modules informally, relying on their personal knowledge of which other engineers used their code; alternatives include formally defining the interfaces between modules and tracking their users.
Software bug fixing provides a microcosm of coordination problems and solutions. Similar coordination problems arise in most processes and are managed by a similar range of mechanisms. For example, diagnosing bug reports and assigning them to engineers may have interesting parallels to diagnosing patients and assigning them to specialists.
While the case presented does not formally test coordination theory, it does illustrate the potential of coordination theory for exploring the space of organizational processes. Future work includes developing more rigorous techniques for such analyses, applying the techniques to a broader range of processes, identifying additional coordination problems and mechanisms and developing tools for collecting and comparing processes and automatically suggesting potential alternatives.
The authors identify the key organizational and environmental characteristics that influence the effectiveness and efficiency of publicly funded service organizations. In a study of 40 community mental health centers (CMHCs), they used fulfillment of community needs as a measure of effectiveness and utilization of various services as a measure of efficiency. The results indicate that client educational status, state facility utilization, minority population, personnel expense, management type, and board composition affect need fulfillment. The study also illuminates the relationship between efficiency and effectiveness of publicly funded service organizations. The findings suggest that the allocation of resources to these organizations from local, state, and federal governments tends to he based on the extent of unmet needs for services. That is, the less the publicly funded service organization meets community needs, the more government funds are allocated to meet the needs. If the unmet needs that stimulate higher levels of funding actually reflect inefficiency, the inverse relationship between effectiveness and efficiency suggests that the government's resource allocation may not be based on performance, but may in fact be rewarding inefficiency. The findings suggest that legitimacy does not enhance efficiency and that legitimacy and efficiency may be entirely independent, which is consistent with institutional theory. The study results will be of practical use to community leaders, taxpayers, consumer advocates, regulatory agencies, and managers of community mental health organizations.
Essay about Organization behavior from the point of view of community building in the sense of shared values, congruent interests, cohering rituals, and a common purpose.

Authors Murmann, Johann P.; Stephan, John; Goodstein, Jerry & Bocker, Warren
Journal or Publication Title Organization Science
Language English
Subjects business studies
HSG Classification contribution to scientific community
Refereed Yes
Date 1 April 1997
Publisher Informs
Volume 8
Number 2
Page Range 126-142
Number of Pages 16
Publisher DOI 10.1287/orsc.8.2.192
Official URL https://pubsonline.informs.org/doi/10.1287/orsc.8....
Contact Email Address peter.murmann@unisg.ch
Depositing User Michele Kölbener
Date Deposited 22 Oct 2018 13:57
Last Modified 22 Oct 2018 13:57
URI: https://www.alexandria.unisg.ch/publications/255429

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Citation

Murmann, Johann P.; Stephan, John; Goodstein, Jerry & Bocker, Warren (1997) Competition in a Multimarket Environment: The Case of Market Exit. Organization Science, 8 (2). 126-142.

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https://www.alexandria.unisg.ch/id/eprint/255429
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