“Austrian” and Industrial Organization Perspectives on Firm-level Competitive Activity and Performance

Abstract

Drawing on the Austrian school of economics and the structure-conduct-performance (s-c-p) paradigm of industrial organization, the authors present and test a dynamic model of competitive activity and performance. They examine the model in two stages. First, they explore the influence of industry-level and firm-level cooperative mechanisms on firm-level competitive activity. Second, they examine the effect of firm- and industry-level competitive activity on firm performance. The authors use the dynamic model of competitive activity to examine the complex linkages between the firm's environment, its actions, and its performance outcomes. They report a longitudinal analysis of a sample of 1,903 competitive moves undertaken in the software industry. Hypothesis testing supports the relationships in the model argued from the Austrian perspective, but provides only partial support for those derived from the s-c-p paradigm. Firm-level cooperative mechanisms are found to increase the firm's competitive activity, and firm-level competitive activity is related positively to the firm's return on assets and return on sales. Contrary to expectation based on the s-c-p paradigm. industry-level cooperative mechanisms are not related to the firm's competitive activity or to its performance. Consistent with the IO paradigm, however, a measure of industry rivalry that directly captures industry-level competitive activity is related negatively to firm-level performance.