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COMPETITORS IN A BUSINESS ENVIRONMENT; A MOTIVATION FOR BETTER PRODUCTS

CHAPTER ONE

INTRODUCTION

Firms often integrate into complementary businesses to benefit from synergies with their core business. For example, Apple produces apps for iOS, adding value to the iPhone. At the same time, this scope expansion makes Apple a competitor of Zynga and other firms whose primary business is producing apps—firms that are critical for the success of the Apple business ecosystem. Similarly, General Motors has a financial arm that makes General Motors’ vehicles more accessible, but also brings them into direct competition with complementary businesses that are first and foremost financial institutions like Bank of America’s auto leasing arm. Although the integrated firms and their independent rivals may produce nearly identical products, the integrated firms have very different motivation. While Zynga’s primary goal is to make money from selling its apps, Apple may be willing to make locally suboptimal decisions in the app market to maximize overall profit through its complementary hardware business. These markets, depicted in Figure 1, reflect a broader trend in retail and technology settings that includes cellular phones, department store store-within-stores (e.g., Louis Vuitton in Bloomingdale’s), and homebuilder financing (Gartenberg, 2014). Because of these differences in motivation, traditional models of competition based on resources or capabilities may have limited ability to predict firm behavior in these settings. In this paper we apply the Awareness-Motivation-Capability (AMC) framework (Chen, 1996; Livengood and Reger, 2010; Yu and Cannella, 2007) to these markets where multi-business firms compete with firms that are also complementors. The added contribution of the AMC framework over and above purely resource- or capabilities-based views is that it yields unique predictions regarding competitive dynamics in the market. Specifically, we apply the framework in a particular industrial setting and derive predictions about the division of the market between the types of firms that cannot be derived from a pure capabilities story. We find empirical support for these predictions, which demonstrates the importance of the AMC framework for explaining competitive dynamics in these markets with complementarity and competition. The AMC framework unifies prior decades of competitive dynamics research by outlining the broad conditions necessary for firms to take competitive actions toward rivals. First, firms must be aware of competitors, a condition that may not be met because managers might either fail to recognize a particular competitor or might instead myopically consider the firm not to be a competitor (Baum and Lant, 2003; Chen, KuoHsien, and Tsai, 2007; Porac et al., 1995; Reger and Huff, 1993; Tsai, Su, and Chen, 2011). Second, the focal firm must also have the motivation to actively compete. Such motivation may be missing if the firm is currently in a détente with the rival that might be broken by excessive competition, such as in the literature on multi-market contact (MMC) (Bernheim and Whinston, 1990; Gimeno, 1999; Jayachandran and Varadarajan, 1999; McGrath and MacMillan, 1998). Alternatively, such motivation may be

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