The Role of Rivals in Resource Picking from Factor Markets

Résumé fourni par la source

Abstract While we know that rivals' activities in product markets are an important source of information, we know little about how firms set expectations and react to information emerging from competitors in strategic factor markets. Our theoretical framework examines this question and explains how rivals' actions in factor markets shape a firm's own resource‐picking decisions. We consider that rivals can utilize a factor of production for different applications and distinguish three distinct rival actions that lead to strategic responses, which are explained by the mechanism of herding. Further, we consider that rivals' actions beyond information also convey competitive pressure that firms react to. We show that considering both informational and competitive cues determines whether firms respond by picking resources from factor markets or by building internal capabilities. The theoretical framework, hence, helps understand the role of rivals when firms decide to pursue new strategic factors and how they obtain such factors. We test our predictions using a fine‐grained dataset of new product development of global bio‐pharmaceutical firms from 1993 to 2018. Overall, the paper provides an important step towards a better understanding of how rivals shape firms' expectations in strategic factor markets.

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