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By defining strategy as a sequence of competitive actions carried out over time, I develop and test a dynamic process model of competitive interaction among firms. Results based on a sample of thousands of competitive actions carried out by rivals competing in 16 different industries over a seven-year period suggest that characteristics of firms' sequences of competitive actions account for differences in their relative performance. The findings also suggest that a firm's sequence of competitive actions is influenced by top management team heterogeneity, past performance, slack, and three important industry characteristics.
As they navigate the competitive landscape, firms often directly and aggressively challenge competitors in an effort to improve relative performance (Lumpkin & Dess, 1996; Miller, 1993). Indeed, in the context of head-to-head competition, firms fight for market share, with, for example, aggressive price and advertising competition (Vilcassim, Kadiyali, & Pradeep, 1999), innovation (Banbury & Mitchell, 1995), first-mover advantages and quick response to competitive challenges (Ferrier, Smith, & Grimm, 1999; Makadok, 1998), and competitive differentiation (Caves & Ghemawat, 1992) or with broad repertoires of such actions (Ferrier et al., 1999).
Although significant insights about the. antecedents and consequences of head-to-head competition have been gleaned from research and contemporary thinking in competitive dynamics and game theory (Grimm & Smith, 1997), hypercompetition (D'Aveni, 1994), and multimarket competition (Chen, 1996; Gimeno & Woo, 1996), researchers in strategic management have yet to fully develop and test a dynamic process theory of competitive interaction. No strategy research to date has explicitly examined how and why the sequential patterns of competitive moves carried out between competing firms unfold over time and how such patterns relate to firm performance.
Accordingly, in this study I attempted to advance understanding of how the process of competitive interaction occurs in strategic time-a journey characterized by complex choices made in the face of uncertainty (Harper, 1994; Ramaprasad & Stone, 1992)-by conceptualizing strategy as an aggressive sequence of competitive moves. Thus, the aim was to capture how competitive aggressiveness influences firm performance and how aggressiveness is influenced by several important internal and external forces and constraints.
THE ACTION-BASED VIEW OF HEAD-TO-- HEAD RIVALRY
Schumpeter's (1950) theory of "creative destruction" aptly describes head-to-head rivalry between firms as "an incessant race to get or to keep ahead of...