Academic journal article Administrative Science Quarterly

Rivalry and the Industry Model of Scottish Knitwear Producers

Academic journal article Administrative Science Quarterly

Rivalry and the Industry Model of Scottish Knitwear Producers

Article excerpt

In this paper we argue that market boundaries are socially constructed around a collective cognitive model that summarizes typical organizational forms within an industry. This model is produced when firms observe each other's actions and define unique product positions in relation to each other. Our study examines the question of how firms define a reference group of rivals when market cues are ambiguous and interorganizational variety is high and identifies the industry model underlying rivalry among Scottish knitwear producers. The data suggest that a six-category model of organizational forms best describes the common sense of competition in the industry and that an ensemble of attributes involving size, technology, product style, and geographic location forms the foundation for this ordering. The results also show how this industry model is reproduced within the rivalry network structuring imperfect competition in the industry.(*)

To model competition among firms, organizational researchers must identify who competes with whom in an organizational field. Two definitions of competition have evolved to inform this judgment. Organizational ecologists argue that competition exists when "the expansion of one unit (firm or population, depending upon the application) diminishes the viability and growth rates of others" (Carroll and Hannan, 1989: 546). Ecologists explore the implications of this definition by measuring the number and characteristics of organizational forms to determine how these are related to vital rates across time. Alternatively, Burt (1988, 1992), in his structural equivalence approach, defined competition as a pattern of transactions among buyers and sellers, and according to Burt (1988: 358), "to the extent that producers of one commodity and the producers of another have identical suppliers and identical consumers, they are competitors in the same market." He measured this transactional equivalence by using industry input-output tables for the U.S. economy.

Ecological and transactional definitions of competition have done much to encourage an organizational approach to markets. Both definitions, however, largely ignore the role of economic actors in defining competitive relationships. Most organizational fields are imperfectly competitive and consist of firms that vary in size and market power, that are aware of each other's existence, and that exploit this knowledge by creating quasi-monopolies through organizational differentiation (e.g., Greenhut, Norman, and Hung, 1987). Imperfect markets are competitive arenas in which rival firms struggle to defend contiguous positions in local environments. To compete successfully, strategists in these firms must compare their organizations with others and identify profitable sources of competitive advantage. These comparisons are embedded in belief systems that summarize organizational forms, give substance to projections of costs, revenues, and demand, and delimit the boundaries of local markets themselves (White, 1981; Porac, Thomas, and Baden-Fuller, 1989). As White and Eccles (1987: 984) noted, imperfect competition is a "tangible social construction" defined by the rivals involved. To identify who competes with whom in imperfect markets, one must capture the belief systems that allow these definitions to persist. At this microscopic level, ecological and transactional definitions of competition fail because they disregard the constitutive role of the managerial mind in making markets. As a result, a substantial gap exists in the literature between the dominant theories of organizational competition and the social reality of rivalry in most organizational fields (Abolafia and Biggart, 1991)

The claim that rivalry is socially constructed follows from many recent arguments that collective beliefs shape interorganizational relationships (e.g., DiMaggio and Powell, 1991; Abrahamson and Fombrun, 1994; Dobbin, 1994). A good case has been made that shared cultural (Hamilton and Biggart, 1988; Whitley, 1992) and macroeconomic (Fligstein, 1990; Dobbin, 1994) ideologies provide the base logics for industrial systems. …

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