Deterrence, reputations, and competitive cognition

Deterrence, reputations, and competitive cognition

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Article ID: iaor1999102
Country: United States
Volume: 44
Issue: 1
Start Page Number: 62
End Page Number: 82
Publication Date: Jan 1998
Journal: Management Science
Authors: ,
Keywords: behaviour, gaming
Abstract:

This study examines an aspect of competitive interactions that has attracted increasing research attention: the relationship between deterrence and competitive reputations. We build a conceptual model of the antecedents and consequences of a firm's reputation for being a credible defender of its markets. Theory and limited empirical evidence suggests a firm with this reputation should deter competitive attacks against it. We explore how a manager's competitive cognition about her opponents' (1) patterns of activity in the marketplace and (2) previous success can lead her to perceive a competitor as a credible defender. We test the framework using MBA students in a quasi-field setting, the Markstrat2 simulation game. The results of this study suggest that reputation deters attack only when the potential attacker considers the target firm a minor competitor. Managers consider defenders that have previously been successful as credible defenders of their markets. They also weigh consistency of activity relative to industry average in making inferences about credibility. The study indicates that the deterrence–reputation link is more complex than previous theory and evidence might imply, and suggests considerable promise for a psychological approach to examining competitive interactions.

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