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Getting Big Too Fast: Strategic Dynamics with Increasing Returns and Bounded Rationality
Abstract
Prior research on competitive strategy in the presence of increasing returns suggests that early entrants can achieve sustained competitive advantage by pursuing Get Big Fast (GBF) strategies: rapidly expanding capacity and cutting prices to gain market share advantage and exploit positive feedbacks faster than their rivals. Yet a growing literature in dynamics and behavioral economics, and the experience of firms during the 2000 crash, raise questions about the GBF prescription. Prior studies generally presume rational actors, perfect foresight and equilibrium. Here we consider the robustness of the GBF strategy in a dynamic model with boundedly rational agents. Agents are endowed with high local rationality but imperfect understanding of the feedback structure of the market; they use intendedly rational heuristics to forecast demand, acquire capacity, and set prices. These heuristics are grounded in empirical study and experimental test. Using a simulation of the duopoly case we show GBF strategies become suboptimal when market dynamics are rapid relative to capacity adjustment. Under a range of plausible assumptions, forecasting errors lead to excess capacity, overwhelming the cost advantage conferred by increasing returns. We explore the sensitivity of the results to assumptions about agent rationality and the feedback complexity of the market. The results highlight the risks of incorporating traditional neoclassical simplifications in strategic prescriptions and demonstrate how disequilibrium behavior and bounded rationality can be incorporated into strategic analysis to form a dynamic, behavioral game theory amenable to rigorous analysis.
... Além disso, a informação sobre a oferta de seus concorrentes que a empresa possui é imperfeita. (STERMAN et al., 2007). Ainda assim, considerando o impacto de decisões de competidores sobre o resultado da empresa, é necessário considerar explicitamente a resposta de competidores na avaliação de decisões relacionadas à difusão de novos produtos. ...
... Getting Big Too Fast: Strategic Dynamics with Increasing Returns and Bounded Rationality Apresenta um modelo de dinâmica competitiva, que também contém um módulo de difusão de novos produtos. (STERMAN et al., 2007) Fonte: Elaborado pelo Autor. ...
... Estes resultados apontam para o fato de que, à medida que os algoritmos estatísticos progridem, novos pesquisadores que adotam abordagens de modelagem exploratória devem buscar técnicas que permitam a triangulação entre os resultados produzidos pelas técnicas consolidadas.Quanto às contribuições para a literatura em difusão de novos produtos, este trabalho contribui em dois aspectos. Primeiro, este trabalho sustenta-se sobre modelos consolidados de difusão de produtos e dinâmica competitiva(BASS, 1969;STERMAN et al., 2007), ampliando-os para que levem em consideração a performance do produto como um critério de competição entre os players. Esta expansão em relação ao modelo original permitiu que a dinâmica de expiração de patentes fosse levada em consideração na avaliação das decisões estratégicas.Em segundo lugar, este trabalho ressalta a utilidade de tais modelos sob outro framework analítico. ...
... At the heart of these propositions is the idea that platform strategy is not that antithetical to traditional strategy Schilling, 1999). The inherent external resource interdependencies between the bounded rational and strategic platform-based market participants (Barney, 1991;Dyer and Singh, 1998;Pfeffer and Salancik, 1978) pose management challenges that are arguably best resolved through increased platform control over the complex adaptive system (Davis et al., 2009;Sterman et al., 2007). These control mechanisms include, say, vertical integration into complement production (Cennamo, 2016) and effective governance (Boudreau and Hagiu, 2009). ...
... Despite the acknowledgement of these dynamic effects, however, most analytical modelers focus on analyzing equilibrium outcomes in a static world, although understanding disequilibrium dynamics is vital to policy formulation (Sterman et al., 2007). Furthermore, the model where the installed base of a platform increases complementors' incentives to support the platform (and vice versa) simplifies the fact that complementors care truly about profits rather than the number of consumer users (which positively affects the profit potential of the complementors on the platform). ...
... Agent-based simulation is not the only computational method for studying out-ofequilibrium economics, though. Perhaps the most prevalent method is still system dynamics (Sterman et al., 2007). To compare, system dynamics (Forrester, 1961;Sterman, 2000) is fundamentally just about solving for differential equations numerically. ...
Largely enabled by information and Internet technologies, we have recently witnessed
the rise of the platform-based business model, where multiple types of actors are brought
together to interact on a common multi-sided platform. Immensely successful platform
firms such as Apple (e.g., with iOS), Microsoft (e.g., with Windows and Xbox) and
Amazon.com (with the marketplace) continue to inspire strategic management scholars
and economists, who try to uncover the strategies that lead to such abnormal platform
performance and competitiveness. While the extensive focus on the platform has offered
useful implications for platform strategy, the resultant inattention to the inherent external
resource interdependencies between the platform and other platform-based market
participants (i.e., complementors and consumers) has hindered theoretical progress. In
particular, the analytical models of multi-sided platforms, which constitute the theoretical
core of platform literature, tend to assume homogeneity and perfect rationality of the
market participants, and further simplify their strategic interactions, limiting the empirical
validity and normative implications of the platform theory.
Therefore, I explore how micro-level strategic interactions between the platform-based
market participants affect platform performance and competitiveness, and hence platform
strategy. To do so, I use agent-based simulation that enables relaxing the unrealistic
assumptions of analytical models, and thus better highlight how heterogeneous and
bounded rational agents interact in platform-based markets. In addition to the individual
studies that offer a variety of models to capture the complex dynamic interactions, I
develop a further set of novel propositions that together illustrate the general argument
that moderate control over the complex adaptive system (i.e., the platform-based market)
improves platform performance and competitiveness. This is because devolving
complementary resource control to the third parties does not only enable the platform
owner to leverage demand-side economies of scale, as argued in the extant literature, but
devolving resource control may also spur opportunistic complementor and consumer
behavior that may at worst disrupt the platform (e.g., the classic case of Atari). Although
the contribution is largely conceptual, it also builds on empirical evidence in the literature
and that I provide. Finally, I make a minor methodological contribution to the study of
platforms, by illustrating the utility of agent-based simulation in studying these complex
adaptive systems, an endeavor that is the first of its kind.
... This approach can serve as an early warning system for the implementation of a region's development policy, to make it possible to choose the optimal policy scenario, and also to anticipate as early as possible the consequences of implementing these policies and thus maintaining consistency (Sterman et al., 2007). The rapid growth of the tourism sector has turned out to negatively impact the spatial structure in Bali, such as land conversion. ...
... In this stage, the determining factors that affect and are affected have been determined based on survey results. The stages of developing the model are as follows (Sterman et al., 2007): ...
... A dynamic system is a representation of the behavior of a system which has an interdependent relationship and changes with time. A dynamic system is an interrelated feedback structure that moves toward a balance (Sterman et al., 2007): ...
Regional development involves optimizing the utilization of the region’s resources in an integrated and harmonious way. This regional development is realized through a comprehensive approach that includes physical, economic, social, cultural, and environmental aspects. The integration of these aspects will lead to sustainable development in the region. However, development is currently often looked at only from a physical way so that the concept of sustainability only exists on paper and does not involve local institutions in the region, such as in the tourism village development program. The purpose of this study is to analyze the relationship between physical/environmental, economic, and social aspects and local institutions in Tabanan Regency, Bali Province in realizing sustainable tourism villages. Primary and secondary data were combined through questionnaires and interviews. This study uses dynamic system analysis. Including all three aspects results in a new model of system dynamics and it can show that the local institutional aspect is an aspect that must be taken into account in designing a model of sustainable development in a region or area. This is so that problems that arise can be eliminated as early as possible and alternative policies can be obtained that should be adopted by policy makers, strengthened by local rules (awig-awig) and local government laws.
... McDougall and Robinson (1990) identified in their empirical research eight different growth strategies, differentiating between aggressive, controlled average, and limited growth. Increasing returns based on learning by doing, scale economies, network effects, information contagion, and the accumulation of complementary assets have long been identified as a source of competitive advantage (Sterman, Henderson, Beinhocker, & Newman, 2007). The recognition of these positive returns sparked the emergence of a "get big fast" strategy to gain a competitive advantage among principally digital startups. ...
... Yet, in the fevered rush to gain dominance, startups often find themselves at a crossroads. The potential of excess capacity, as laid out by Sterman et al. (2007), is just one of the potential risks of such a strategy. Thus, the dilemma of a new (digital) venture's growth strategy becomes palpable: should they sprint and rapidly capture the market or opt for a slower-paced, sustainable trajectory? ...
... An extensive user base translates into a larger market for complementors and initiates a cascade of positive reinforcing effects (Arthur, 1989). The intricate interplay of these network dynamics underscores a preference for the 'get big fast' strategy (Cennamo and Santalo, 2013;Lee et al., 2006;Sterman et al., 2007). This paradigm encourages the adoption of strategies by platforms focused on rapidly expanding their user base and complementors, thereby fostering mutually reinforcing benefits on the two sides of the market. ...
... Furthermore, higher within-platform competition among complementors reduces product prices, resulting in a higher transaction volume between the platform's sides, which can boost platform profits. The pursuit of these benefits has been behind the aggressive growth strategies (Sterman et al., 2007), which suggest expanding the user base and complementors and boosting the cross-side network externalities rapidly and benefit from the winner-takes-all outcome (Cennamo and Santalo, 2013;Katz and Shapiro, 1994;Lee et al., 2006;Schilling, 2002). ...
Multisided platforms face a fundamental trade‐off: should they ease entry for a larger number of providers of complementary products or services (complementors) to join the platform and benefit from cross‐side network externalities, or should they limit entry to maintain complementors’ incentives to provide high‐quality offerings? We contend that a specific cross‐subsidizing pricing strategy – where the amount of subsidy to complementors is explicitly linked to the overall revenue they generate on the other side of the platform – may mitigate this trade‐off. Using data from the airport industry, we demonstrate that following a reduction of airlines’ entry barriers, airports that subsidize airlines, based on the aforementioned scheme, can boost their financial performance and maintain traffic composition in favour of legacy airlines, which bring passengers who spend more in airport shops. Our findings shed light on how cross‐subsidization may balance the variety and quality of complementors and their offerings on multisided platforms.
... Important to the development of resilience capacity as a dynamic capability of the firm is the assumption that the firms' policy choices interdepend and evolve over an extended period of time, or longitudinally, that is in contrast to viewing managerial choice as a crosssectional phenomenon at a specific point in time (Ghemawat & Cassiman, 2007). Earlier scholarship emphasises both organisational learning in building dynamic capabilities of the firm (Teece et al., 1997) and path dependency of choices in strategically dynamic environments (Ghemawat & Cassiman, 2007;Sterman et al., 2007;Teece, 2007;Teece et al., 1997) of disequilibrium. This paper emphasises the notion of disequilibrium and the capabilities that are essential to value creation and appropriation during such time (Sterman et al., 2007) as the focal environmental condition. ...
... Earlier scholarship emphasises both organisational learning in building dynamic capabilities of the firm (Teece et al., 1997) and path dependency of choices in strategically dynamic environments (Ghemawat & Cassiman, 2007;Sterman et al., 2007;Teece, 2007;Teece et al., 1997) of disequilibrium. This paper emphasises the notion of disequilibrium and the capabilities that are essential to value creation and appropriation during such time (Sterman et al., 2007) as the focal environmental condition. ...
An environment, in which volatility and deep uncertainty represent the leading paradigm, pressures firms to focus their attention on adapting to disruptive environmental conditions. Although scholarly attention in the firm-level resilience construct has increased over the years, a number of important issues remain underexplored. To advance progress in the field, research is needed on the dimensions of resilient response formulation and enactment, the dimensions of the disruptive environment and situational factors as well as resilience as a latent outcome variable. Based on an in-depth, systematic review of the received literature, this thesis aims to extend the firm-level resilience literature by offering two distinct views of how firms develop, nurture and sustain firm-level resilience: One, the conceptual model of resilience capacity proposes a dynamic capability view of the dimensions and capabilities that underpin resilience capacity, thereby informing the capability literature on the capabilities essential to firm-level resilience. Two, the empirical study yields an inductive-contingency-based model of resilience that informs literature on the processes, dynamics and behaviours that underpin resilience response formulation and enactment contingent upon situational factors as well as characteristics of disruptiveness by detailing the dynamic, recursive and reciprocal nature of the relationships within the inductive model. In combination, these two views may provide useful insights to inform scholarship and managerial practise.
... We include a discussion of the attacker perspective because insights can be generated for incumbents as to how best to defend against attackers, or how they can disrupt themselves and become attackers. Many of the successful digital attackers have been new entrants who placed "big bets" (i.e., very large capacity investments to benefit from increasing returnsa "get big fast" (GBF) strategy (Sterman et al., 2007). ...
... But scalability comes with constraints -tech companies have often been focused on GBF -but it is risky and can become "get big too fast" (Sterman et al., 2007;De Massis et al., 2016). Forecasting errors in demand can lead to surplus capacity. ...
The literature on digital disruption has a gap in understanding the capabilities that incumbents develop or enhance to defend or counter-attack against digital attackers. We examine examples of incumbent fashion retail-manufacturers, both high and poor performers, from a systematic review of publicly available data. We uncover the capabilities that underpin the performance outcomes from the incumbents’ defence or counter attack against disruption from digital attackers.
We show that the higher performing incumbents have developed new and enhanced capabilities across the whole range of capability categories in order to out-perform the digital attacker. In addition they focus on two specific categories: to further enhance a strong capability around their unique differentiation based around existing resources - their physical stores; also to focus on one of the attackers’ strongest capabilities - a rapid response to changing GENz customer trends. The strategic choice of which capabilities to enhance is driven by a goal to increase an existing advantage, or match the attacker's advantage, or both.
We contribute to theory on the dynamic capability of strategic agility which includes the speed and scale of pivoting to implement new initiatives and the capability to shape, and not just respond to, uncertainties in the external environment.
... In modelling OEMs' behaviour, a key decision rule can be highlighted: the 'anchoring and adjustment' heuristic applied for a duopoly by Sterman et al. [46] and described as a goal adjustment feedback loop by Sterman [5]. In the context of OEM powertrain pricing, this judgemental heuristic was employed by Thies et al. [40]. ...
... costs decline 10%) for the remaining powertrains (pp. [45][46]. [40] AI The effect of learning is also based on [5] with the following numerical values assumed for PHEVs: fractional cost reduction per doubling of experience (λ) equal to 0.15 and initial experience totaling 1 million kWh. Using information from their Tables 1 and 2, the battery production cost per kWh can be estimated, with the resulting values depending on vehicle size (pp. ...
While the market evolution of electric vehicles is uncertain, numerous studies have explored the future market diffusion of this and alternative powertrain technologies. This paper reviews studies that are based on system dynamics models and classifies this literature into ‘automotive industry-oriented’ and ‘public policy-oriented’. Our review shows that the models of most of these studies share basic properties by design, yet differ not only in purpose but also in the assumptions they adopt, particularly with regards to consumer choice of powertrains. Taken together, these diverse modelling exercises can be understood as a model library to gain insights into different key markets. In terms of the type of models examined, this paper also discusses some methodological issues and suggests future modelling developments. Further research needs include the interlinkage of models to better understand the evolution of the battery price.
... Moreover, it is important to be aware of e-commerce being fast-paced and technology-driven and therefore tends to outpace traditional companies in how they deploy corporate strategies (Amir & Lev, 1996;Luo, et al., 2005). Moreover, many e-businesses are keen to grow fast, also known as the 'get big fast' (GBF) strategy (Sterman, et al., 2007). Hence, they consider negative earnings with the positivistic outlook of being profitable in the long-run (Oliva, et al., 2003). ...
... Therefore, these categories represent growth modes, which correspond to the outlined GBFstrategy 46 (Sterman, et al., 2007). 43 This could also expose 'heterogenous' relationships. ...
This study analyses the effects of strategic corporate announcements on the company value. It assumes the efficiency of the markets and that every new firm-specific information with the potential of altering cash flow is incorporated in the firm’s stock price. The study chose the nascent e-commerce sector that associates with an industrial disruption caused by the Internet. Hereby, the e-commerce sector exposes its wide range of players ranging from pure Internet firms over hybrid firms to traditional firms pursuing their virtual market entrance. Using an event study method, the author categorises and assesses 262 management actions announced by 63 firms. Most of these announcements were allocated to the category ‘Strategic collaboration’. Mainly this category is subject to this study together with the categories ‘Investment’ and ‘Acquisition’. All three categories are coded under the broad initiative and growth strategy of ‘Market penetration’. According to the several intentions of the announcements within these categories, some of them were also coded under other categories such as ‘New products and services’. However, ‘Strategic collaboration’ proves to deliver the highest number of announcements and generates the highest abnormal returns. Furthermore, pure Internet firms constitute much of the sample group and generate on average the highest abnormal returns. Management actions grouped into categories are further specified and interpreted using the resource-based view (RBV). Thereby, this study explains the underlying motives of several management decisions and attempts to give a guideline on positively rewarded announcements of such management decisions. Subsequently, this study discusses the explanatory power of relative values when dealing with a diverse sample group.
... For example, Roxas and Coetzer (2012) examine how managerial mental models about the natural environment interact with the institutional environment to affect strategic orientation towards environmental sustainability. Another example is Sterman et al. (2007), who investigate the consequences of firm growth strategy in a competitive environment and reveal that growth strategies can lead a firm into financial crisis if the managers are unaware of bounded rationality during their decision-making processes. Oliva and Sterman (2001) find that, when management practice interacts with the characteristics of services (e.g. ...
... Our study adds knowledge to the literature on mental models in three ways. First, while prior studies have largely examined managerial mental models from a static perspective (Mohammed et al., 2010;Roxas and Coetzer, 2012;Sterman et al., 2007), we unpack the dynamics of managerial mental models and trace the creation and evolution of mental models over a 12-year period of time. We reveal three distinct stages of change in managerial mental models with the case company. ...
Substantial evidence suggests that managerial mental models play an important role in firm performance. Yet managerial mental models are not static but dynamic. This research investigates the creation and evolution of mental models over time and how this dynamic process influences strategic choice and firm performance. We adopt the causal loop diagramming method, with in-depth case analysis over a period of 12 years, as the primary investigatory approach. Our research contributes to knowledge by identifying the shared mental model of the top management team, represented in the causal loop diagrams, for each stage of the company’s development. Our findings suggest that the dynamics of managerial mental models explains the changes in firm performance over time. JEL classification: L2.
... There are issues associated with overly rapid product/service development. The 'get big fast' strategy is associated with the growth of the internet and digital business; it is widely accepted that getting big too fast can be dangerous, and there are limits to growth (Sterman, Henderson, Beinhocker & Newman, 2007). Setting aggressive commercialisation schedules often has the opposite effect than intended, creating longer delays and lower quality, with cascading effects on product development projects (Mass & Berkson, 1995). ...
... Deploying new services rapidly is increasingly important for competitiveness (Qiang, Voss, & Zhao, 2018), however extant research shows that too rapid growth leads to negative outcomes (Sterman et al., 2007). Our research builds on this this by exploring rapid growth in digital services and the precursors of and behavioural contributors to ramp-up problems. ...
Markets are pressuring companies to develop new services quickly and to get them to market as soon as possible, leading to pressure for rapid deployment and ramp‐ups. Such pressure has increased with the growing digitalisation of services sectors such as banking, insurance and media (McKinsey & Co., 2015). Ramp‐ups of such services usually require a significant commitment of resources, which may cause problems if the available resources do not match the demand growth or if they are diverted from other services and involve ramping up the whole service supply chain.
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... There are issues associated with overly rapid product/service development. The 'get big fast' strategy is associated with the growth of the internet and digital business; it is widely accepted that getting big too fast can be dangerous, and there are limits to growth (Sterman, Henderson, Beinhocker & Newman, 2007). Setting aggressive commercialisation schedules often has the opposite effect than intended, creating longer delays and lower quality, with cascading effects on product development projects (Mass & Berkson, 1995). ...
... Deploying new services rapidly is increasingly important for competitiveness (Qiang, Voss, & Zhao, 2018), however extant research shows that too rapid growth leads to negative outcomes ( Sterman et al., 2007). Our research builds on this this by exploring rapid growth in digital services and the precursors of and behavioural contributors to ramp-up problems. ...
Volume ramp-ups are notoriously difficult in digital services, where market pressures can lead to ramping up too soon and too rapidly which in turn can lead to the need to ramp-down. This paper addresses the challenge of taking innovation to scale in an established firm by enhancing our understanding of the nature of service ramp-ups and ramp-downs. Digital service ramp-ups differ substantially from production ramp-ups as the speed is much greater, and problems are visible to customers. However there are similarities between service ramp-downs and product recalls and an important contribution is exploring the nature of ramp-downs their processes and possible causes. Using an engaged research approach, longitudinal data from three consecutive ramp-ups in a European telecom operator were collected. Through analyses of cases, qualitative and quantitative case data, and using a system dynamics model, we identified a set of issues that affect service ramp-ups and ramp-downs. These include the need to ramp up the service supply chain, biases leading to unrealistic assumptions about scalability and problem-solving, decision biases in various functions, launching digital services in beta form, a lack of transparency of capacity and lack of learning from previous ramp-ups. We show that if these problems are not addressed or resolution is delayed, this can lead to cycles of delay, backlogs and productivity problems and the inevitability of a ramp-down. We explore reasons and importance for such delays that lead to service ramp-downs.
... Авторы добавляют, что стратегии быстрого роста не всегда являются оптимальными даже для рынков, на которых действует возрастающая отдача. Идея Б. Гольдфарба и соавторов о том, что даже на рынках с возрастающей отдачей стратегии быстрого роста не всегда являются оптимальными, получила дальнейшее развитие в работе Джона Стермана и соавторов [Sterman et al., 2007]. Дж. ...
Монография посвящена теоретическим и практическим аспектам управления на рынках с возрастающей отдачей.
Управление высокотехнологичной компанией требует от руководителей
новых навыков и нестандартных подходов. Неопределенность, сложность и
нелинейность экономических процессов, размытость и проницаемость отраслевых границ лежат в основе вызовов при выработке стратегии компании.
При разработке стратегии менеджерам следует учитывать влияние и
механизм проявления возрастающей отдачи. Традиционные инструменты
стратегического анализа необходимо дополнить инструментарием, имеющим
высокий прогностический потенциал и позволяющим комплексно оценить
характер потенциальных изменений. Системный анализ и имитационное моделирование позволяют включить эффекты возрастающей отдачи в методологию моделирования стратегии, а также сформировать у менеджеров взгляд на бизнес как на сложную систему с множеством взаимозависимостей.
Для руководителей бизнеса, практиков, студентов и аспирантов, обучающихся по управленческим специальностям.
... Thus, a firm may be unable to generate sufficient earnings, even though its parent industry remains healthy. The unsustainable sales growth targets of JDS Uniphase (Sterman et al., 2007) exemplify a firm that tried to grow rapidly by keeping its prices low to gain market share; however, the firm ended up in financial distress because other parts of the firm were not capable of sustaining that growth, leading to declines in both product quality and sales. ...
Financial distress befalls even well-managed firms, many of which find ways to turn around. Hence, it is pertinent to explore how distressed firms recover. Unfortunately, extant research sheds little light on the role of marketing in enabling distressed firms’ turnaround. Using a longitudinal dataset of U.S. firms, we empirically show that when the source of distress is firm-specific, it is marketing capability (as opposed to R&D and operations capabilities) that enables a turnaround. However, when distress is industry-driven, R&D capability is also beneficial. Further, although operations capability and cost-reduction actions do help distressed firms survive, they do not help firms regain financial well-being. Overall, these results highlight the importance of capabilities in the context of distressed firms and have implications for both firm managers and shareholders.
... Similarly, there is no reference to organisational politics where various parties such as capital providers, agents (senior managers), employees and other stakeholders compete for scarce resources (see Hinck and Conrad, 2018). Finally, people are naturally limited in their information processing capabilities (Sterman et al., 2007;Nelson, 2008;Puranam et al., 2015) -a fact not considered in the rational decision making model. ...
Strategizing Modes In Action (An Irish Case Study) Edward Dennehy SETU Edward.dennehy@setu.ie Purpose: This article aims to investigate the strategizing approach of an Irish SME owner and develop a conceptual framework for general analysis of strategizing modes using the paradigms of rational v intuitive bases for strategy formation, and the planned v incremental formats of strategic actions. Design/methodology/approach: A case study approach was used involving a semi-structured interview and background research. Findings: The research concluded that the SME owner depended largely on her intuition for strategizing. This approach was very successful when her personal experiences were relevant and unsuccessful when irrelevant. Research limitations/implications: The primary research relates to the strategizing mode of a single SME owner. The findings imply that contextual knowledge is important in the study of the analysis of intuition and its value to strategizing. Practical implications: The research reinforces the value of relevant experience in managerial decision-making which has clear HRM implications, and in particular, offers a cautionary warning to managers engaging in diversification. Social implications: The paper indirectly promotes the concept of self-awareness and the understanding of personal limitations. Such self-reflection may help managers become aware of personal biases and heuristics. Originality/value: The primary research findings offer a more nuanced understanding of the value of intuition to strategic decision-making. The strategizing modes conceptual framework offers a base and tool for further research.
... In line with standard system dynamics formulations, we first determine the indicated consumer market share at time t (Ĉ t ð Þ), which represents the expected consumer market share under the current conditions. We assume that the indicated market share is determined based on the logit discrete choice model [11,33], which has been extensively used in the system dynamics literature [48,6]. 5 Accordingly, the indicated consumer market share of the platform, Ĉ t ð Þ, is given by: ...
... La fracción de muertes FM está determinada por la densidad respecto a la capacidad de carga C de la población de ET, de acuerdo con la función de la Figura 6.a. (Forrester, 1961;Sterman, 2000Sterman, , 2007. El modelo se parametrizó y calibró con el objetivo de que el usuario pueda identificar la estructura y 3 3 3 3 3 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 ...
El artículo presenta un simulador de vuelo ejecutivo (SVE), como parte de un entorno de aprendizaje, diseñado para ser utilizado por dueños o administradores de parques o reservas cinegéticas, grupos conservacionistas o diseñadores de políticas ecológicas gubernamentales, con el objetivo de evaluar diversas estrategias y de proveer experiencia virtual en la planeación estratégica sustentable y rentable de dichos parques o reservas de turismo cinegético. El SVE está basado en un modelo de dinámica de sistemas que evalúa el riesgo de agotamiento de la población, sus beneficios económicos potenciales y la generación potencial de impuestos en un parque virtual. Se diseñó el SVE con el objetivo de evaluar los impactos de diversas políticas desde la libre cacería hasta políticas altamente restrictivas como cuotas de caza, esquemas de impuestos y precios. La estructura del modelo está basada en el fenómeno económico denominado “tragedia de los comunes”, el cual ocurre cuando los individuos, actuando independientemente unos de otros, explotan indiscriminadamente un recurso de propiedad común, buscando obtener beneficios de corto plazo, mientras lo agotan para su uso en el largo plazo. La utilización del SVE muestra que sí es posible la sustentabilidad y la rentabilidad en una reserva de turismo cinegético, aplicando combinaciones de estrategias o políticas racionales a nivel sistema.
... If this heterogeneity is not accounted for, there is a risk of underestimating the degree to which technology has intensified the organized complexity of the environment, resulting in problematic runaway dynamics, by which an ecosystem ends up exploited and eroded by blitzscaling and disruption (Bateson, 2000;Hörl, 2017b). There are many examples of such dynamics of digitalization, especially when fueled by a belief in limitless user-growth and blitzscaling network effects (Mikołajewska-Zając et al., 2021;Sterman et al., 2007). As Netflix, for instance, pushes the limits of the human need for sleep in order to maintain growth, it inadvertently erodes the capacity of its own audience to pay attention (Terranova, 2012). ...
The notion of digital ecosystems has become a fruitful metaphor for examining the effects of digitalization across boundaries of organization, industry, lifeworld, mind, and body. In business-economic terms, the metaphor has inspired IS research into new business models, while in engineering terms, it has led to important insights into the design and governance of digital platforms. Studying digital ecosystems in these terms, however, makes it difficult to trace and explain those effects of digitalization, which do not materialize predominantly in economic and engineering patterns. Important relationships and their effects may therefore go unnoticed. In response, I draw on the ecological epistemology of Gregory Bateson and others to contribute an ecological approach to digital ecosystems. Such an understanding, I argue, expands the possibilities for tracing and explaining the wide-reaching, boundary-crossing effects of digitalization and the runaway dynamics they may lead to. I suggest to do this based on three principles: (1) part-of-ness—phenomena are to be observed as always part of a larger ecosystem; (2) systemic wisdom—ecosystems have limits, which need to be respected; and (3) information ecology—ecosystems are not mechanical but informed, cognitive systems. As my contribution, I propose six avenues for future IS research into digital ecology.
... While the analysis of information perception is not a novel topic of research, with some of the previous studies focused on firm's strategy (Sterman et al., 2007), public perception of water reuse (Hartley, 2006), management issues in the fishing industry (Crona and Bodin, 2006;Moxnes, 1998), and climate change (Moxnes and Saysel, 2008), very limited research has been done on how information perception influences resource management. Further, the current literature does not provide a clear-cut answer to how information perception can affect the dynamics of common's management. ...
... For growth oriented companies which are not afraid of this risk, have huge fundraising possibilities or important capital reserves, early and substantial investment incapacity has been recommended because of several reinforcing effects enabling sustained competitive advantage; at the same time, there is a thin line between getting big fast and getting too big too fast [24,[31][32][33]. The importance of developing sufficient capacity has been stressed [31], but "overshoot and collapse" as well as other cyclic instabilities continue to challenge managers [24,34]. ...
This article addresses the generic dynamic decision problem of how to achieve sustained market growth by increasing two interdependent organizational resources needed (1) to increase and (2) to sustain demand. The speed and costs of increasing each resource are different. Failure to account for this difference has been reported to lead to policies that drive a quick increase of demand followed by decline. Three generic policies derived from the literature have been implemented in a system dynamics model. Simulation shows that all three policies can generate sustained exponential growth but differ in performance. These results suggest that even policies which risk generating overshoot and collapse can avoid it. This poses two questions for further research: (1) what is the reasoning of human decision-makers when choosing between these policies and (2) how can the important but easily overlooked features of such decision situations be made sufficiently salient to be accounted for?
... The processes that occur in the real world must be understood to create a logical model resembling reality. The understanding can be obtained by distinguishing the cause and effect variables and or by distinguishing the dependent and independent variables (Sterman, Henderson, Beinhocker, & Newman, 2007). ...
The development of the Islamic State (IS) in Southeast Asia creates changes in the social order in a direct and indirect manner. This study aims to identify the factors that influence the development of the Islamic State (IS) and analyze the influence of its development on social vulnerability in Southeast Asia. This study employed a mixed-method supported by the Interpretive Structural Modeling (ISM), Analytical Hierarchy Process (AHP), and System Dynamics (SD). Based on the results of research from relevant experts, this study uncovered seven the most dominant and structured problems. Furthermore, there are fourteen elements related to the social vulnerability of the Islamic State (IS) in Southeast Asia. The social vulnerability value is 0.01 and is categorized as Low Vulnerability. The aspects that influence the development of Islamic State indicate that the existing social system in Southeast Asia is strong enough in encountering the influence of ideology and the development of the Islamic State.
... In their famous survey on heuristics and biases, Tversky and Kahneman (1974, p. 185) note that "in many situations, people make estimates by starting from an initial value that is adjusted to yield the final answer" and that "adjustments are typically insufficient". Sterman (1989), in his seminal paper, identifies this anchoring and (insufficient) adjustment behaviour as typical heuristic used in capacity adjustment decisions (with the status quo being quite naturally used as anchor) and provides evidence for its intended rationality (similar also in his more recent study, Sterman et al. 2007). Aramburo et al. (2012) review results from a vast number of laboratory experiments on decision making in complex and dynamic environments. ...
We propose a prototype model of market dynamics in which all functional relationships are linear. We take into account three borders, defined by linear functions, that are intrinsic to the economic reasoning: non-negativity of prices; downward rigidity of capacity (depreciation); and a capacity constraint for the production decision. Given the linear specification, the borders are the only source for the emerging of cyclical and more complex dynamics. In particular, we discuss centre bifurcations, border collision bifurcations and degenerate flip bifurcations—dynamic phenomena the occurrence of which are intimately related to the existence of borders.
... Long-term growth was operationalized as the mean quarterly change in employment from entry to exit. Moderate organizational growth was anticipated to be positively associated with survival, but very high growth has been argued to be negatively associated with organizational survival (Sterman et al. 2007); hence, we control for the polynomial effect of growth. ...
This research addresses the fundamental question of whether providing a safe workplace improves or hinders organizational survival, because there are conflicting predictions on the relationship between worker safety and organizational performance. The results, based on a unique longitudinal database covering more than 100,000 organizations across 25 years in the U.S. state of Oregon, indicate that, in general, organizations that provide a safe workplace have significantly lower odds and length of survival. Additionally, the organizations that would, in general, have better survival odds benefit most from not providing a safe workplace. This suggests that relying on the market does not engender workplace safety.
This paper was accepted by Charles Corbett, operations management.
... The bounded rationality perspective suggests that, rather than optimizing every possible decision, adversaries often satisfice due to incomplete information, time, and their limited ability to process it (Arthur, 1994;Simon, 1955Simon, , 1972. Prior research and experimental evidence has widely accepted and supported the bounded rationality concept (Sterman, Henderson, Beinhocker, & Newman, 2007;Ho & Zhang, 2008). Furthermore, learning constitutes an integral part of game theory (Fudenberg, Drew, Levine, & Levine, 1998). ...
... Research from Oliva, Sterman, and Giese (2003) shows 'get big fast' strategy that focuses only on low pricing and heavy marketing campaign while their capability to fulfill orders or provide highquality services cannot catch up with the market demand poised to fail. Sterman, Henderson, Beinhocker and Newman (2007) also argued that 'get big fast' strategy increases the risk of overcapacity in the industry. Companies that are able to address the above issues are more likely to become business ecosystem leaders. ...
There are many innovative products fail to reach minimum critical mass adopter and cease to exist. New financial technology products are not an exception because the current financial technology to facilitate transactions, whether payment, investment, and insurance still function remarkably well. Since new financial technology products have features to better serve low to middle-level customers in the form of higher convenience level and lower costs than the current financial technology products, the initiatives to ensure their success is imperative. Thus, the purpose of this study is to present propositions based on a literature review to encourage companies to simultaneously have two competencies, first competencies in new product development and second, competencies to foster and collaborate with other companies in within and across business ecosystems. The implications of this paper are companies with higher competencies to foster and collaborate with other companies, even though they start with relatively basic innovative product, have higher probability to reach minimum critical mass of adopter and higher probability to become leader in their business ecosystem and government need to maintain their active role to foster collaboration within and across business ecosystem.
Keywords: Business ecosystem, business ecosystems leader, collaboration, fintech (financial technology), new product development.
... Details on anchoring and adjustment are given, for example, inSterman et al. (2007). ...
In this habilitation thesis, topics related to the strategic planning towards electric mobility in the automotive industry are discussed from a management perspective. The thesis is cumulative in nature, consisting of ten scientific papers, which have been published in renowned, peer-reviewed international journals and conference proceedings. This thesis points out the connections between the different articles and summarizes their essential findings.
The papers reflect the results of the research I have conducted at the Chair of Production and Logistics (Prof. Dr. Thomas S. Spengler) as a subdivision of the Institute of Automotive Management and Industrial Production at Technische Universität Braunschweig as well as the Automotive Research Centre Niedersachsen as an interdisciplinary and interdepartmental research association of Technische Universität Braunschweig. All research activities have been carried out in close cooperation with different disciplines and stakeholders from science, policy, and industry, typically in long-term research projects funded by public funding bodies or industrial project partners.
... For instance, dynamic system models may be developed to test the necessary and sufficient conditions for the emergence of disruptive innovation (e.g. Sterman et al., 2007). The formal modelling may offer new insights to the disruptive innovation literature that has mostly been developed through conventional empirical methods. ...
... However, the marketing literature mostly does not account for endogenous capacity acquisition and the possibility of inadequate or excess capacity, implicitly assuming that capacity can be adjusted quickly to meet demand or, if capacity acquisition takes time, that demand forecasts are nearly perfect so that imbalances that might affect product availability or prices never arise. Neither assumption is typically correct (Sterman et al., 2007). ...
Constraints on production capacity adjustment present a strategic and operational problem for managers launching products when demand is uncertain. Stock‐outs can be costly if demand exceeds available product supply, as sales are deferred or lost when prospective customers are waitlisted. Recent research on diffusion under supply constraints has analyzed launch strategies to minimize the chance of stock‐outs. Others suggest that waitlisted buyers generate social exposure that can boost customer demand and shape the diffusion process. We develop a generalized model of new product diffusion under supply constraints that explicitly accounts for endogenous customer waitlisting and waitlist‐generated word‐of‐mouth. We estimate the model for a prominent example of waitlisting, the launch of the Toyota Prius hybrid‐electric vehicle in the U.S.A., finding evidence of positive word‐of‐mouth from waitlisted buyers. Inclusion of endogenous supply constraints and waitlisting also alters the estimated contribution of marketing and adopter word‐of‐mouth.
Copyright © 2018 System Dynamics Society
... Relative price difference (price difference/price conventional jet fuel) Also, the modelling of the airline industry's pricing mechanism is closely related to the work by Pierson and Sterman [16]. We assume that airlines use an anchoring-and-adjustment heuristic to determine appropriate fares [24,25]. The airline fares AF(t) adjust to a reference level AF REF (t) as a goal-seeking process with adjustment time τ AF . ...
The mid-term framework of global aviation is shaped by air travel demand growth rates of 2–5% p.a. and ambitious targets to reduce aviation-related CO2 emissions by up to 50% until 2050. Alternative jet fuels such as bio- or electrofuels can be considered as a potential means towards low-emission aviation. While these fuels offer significant emission reduction potential, their market success depends on manifold influencing factors like the maturity of the production technology or the development of the price of conventional jet fuel. To study the potential for adoption of alternative jet fuels in aviation and the extent to which alternative fuels can contribute to the reduction targets, we deploy a System Dynamics approach. The results indicate that the adoption of alternative fuels and therefore their potential towards low-emissions aviation is rather limited in most scenarios considered since current production processes do not allow for competitive prices compared to conventional jet fuel. This calls for the development of new production processes that allow for economic feasibility of converting biomass or hydrogen into drop-in fuels as well as political measures to promote the adoption of alternative fuels.
... Research on strategic growth decisions demonstrates how SD can effectively explore the performance implications of constructs with such properties. For instance, Sterman et al. (2007) explore performance outcomes of so-called 'Get Big Fast' growth strategies. Their SD simulation integrates not only desired feedback loops such network effects and economies of scale, but also includes an undesirable form of feedback loop: quality erosion. ...
The business model has evolved as an important concept in strategic management. While recent years have seen substantial progress in the business model’s conceptual development, empirical progress remains limited. I argue that this limited progress might be due to a mismatch between the business model’s characteristics and the methods applied to study it. This essay introduces two methods—qualitative comparative analysis and system dynamics simulation—that share key characteristics with the business model concept. The essay introduces these methods and discusses five directions for applying them in business model research. In doing so, I hope to contribute to a stronger harmonization of conceptual and empirical business model research.
... Producers who benefit from positive feedbacks can raise prices, or in the case of automobile companies, not offer discounts, but manufacturing constraints limit the extent to which they can exploit positive feedbacks, which, in turn, limits the strategic significance of the feedbacks. In these industries, a firm that grows too fast can overshoot their capacity resulting in a rapid decline (Sterman, Henderson, Beinhocker, & Newman, 2007). 7 In contrast, weightless goods (Coyle, 1999), which occupy a growing share of the market, suffer from little or no production constraints. ...
... There is a tradition in the use of dynamic simulation to study problems in the social sciences. Currently, it is used in business dynamics (Sterman, Henderson, Beinhocker, & Newman, 2007), (Morecroft, 2007), (Kunc, 2010), public health (Horner & Hirsch, 2006), (Thompson & Duintjer Tebbens, 2008), social welfare (Zagonel, Rohrbaugh, & Andersen, 2004), sustainable development (Dudley, 2008), security (Bontkes, 1993), among many others. The methodology is iterative, it allows various stakeholders to combine their knowledge of a problem in a dynamic hypothesis and then, using computer simulation, formally compare various scenarios on how to lead change (Andersen, Richardson, & Vennix, 1997). ...
The digital transformation puts to the test the sustainability of traditional business models. The aim of this research work is to formulate a framework that explains resources, capabilities and management choices necessary to respond to the new environment. The proposal based on literature review of both theoretical and empirical research. The framework abstracts complexity to isolate a few key variables. Its specification based on system dynamics since it naturally models forces of change in a complex system so that their influences can be better understood.
... Scholars that investigate sustainability in the context of strategic management and decision making are often concerned with complex phenomena, in which reliable data are scarce (Davis et al., 2007). Thus, simulation modeling is frequently used as a methodology for the development, expansion, and testing of theories (Paich and Sterman, 1993;Rahmandad et al., 2016;Sterman et al., 2007;Zott, 2003). Simulation modeling provides researchers with precise means to explore specific concepts and assumptions from verbal theories (Davis et al., 2007) and to study the relation between concepts when empirical data limitations exist (Zott, 2003). ...
Entrepreneurial ventures increasingly aim at developing viable business models for solving societal or ecological challenges. Such business models for sustainability (BMfS) build on reinforcing mechanisms of value creation and capture that allow achieving financial and sustainability objectives simultaneously. To date, we do not know much about the successful design of such business models. This research aims to reduce this gap by experimentally exploring their scalability and robustness in different environmental conditions. Rooted in the literature on business models and innovation adoption, we develop a simulation model that integrates various dimensions of BMfS. We apply the simulation to Coursera, an entrepreneurial venture with the social mission of making high-quality education globally accessible. The simulation allows us to test hypotheses about the venture's financial and sustainability performance over time. We find that the business model is highly scalable but shows limited robustness to strong competitive pressure. We derive implications for the effective design of business models and discuss how the findings contribute to sustainability literature.
... Understanding the implications of these feedbacks for markets and firm strategy has been a fundamental contribution of the system dynamics methodology (e.g. Oliva et al., 2003;Sterman et al., 2007;Struben and Sterman, 2008). ...
This paper develops a model of consumer choice that demonstrates why some markets with increasing returns converge to a winner-take-all outcome while many others have a power law market share distribution with a “long tail” of small-share products. The model takes the standard winner-take-all model of increasing returns and adds a simple behavioral assumption: when faced with complex choices, decision makers first quickly eliminate many of the available options using a simple heuristic before selecting from the remaining feasible set. We examine the market-level consequences of this model using an agent-based simulation. Under a wide range of parameters the model produces a power law share distribution. But when consumers have very large feasible sets the market converges to a winner-take-all outcome, and when consumers have very small feasible sets the model produces an evenly split market. Copyright © 2017 System Dynamics Society.
Высокотехнологичные, основанные на знаниях компании испытывают сильное воздействие экономического закона возрастающей отдачи. Цель исследования — выявить особенности стратегического управления высокотехнологичными компаниями на рынках, для которых характерны проявления эффектов возрастающей отдачи. В работе проанализирована
эволюция теоретических воззрений на феномен возрастающей отдачи с конца XIX в. и по начало XXI в., выявлена научная преемственность между исследователями, сделавшими наибольший вклад в понимание возрастающей отдачи. Теоретическую базу исследования составили работы ведущих экономистов: А. Маршалла, Э. Янга, Н. Калдора, К. Эрроу, М. Спенса, Дж. Стиглица и др. Прослежена эволюция взглядов на возрастающую отдачу не только в экономике, но и в науке управления; продемонстрировано, как популяризация концепции возрастающей отдачи в академических кругах привела к распространению в практике менеджмента «стратегий быстрого роста» (get-big-fast strategies), целью которых является достижение эффекта «замыкания» рынка на использовании продукта (технологии) компании-лидера. Кроме того, проведен сравнительный анализ характеристик и особенностей конкуренции традиционных отраслей и отраслей с возрастающей отдачей. В работе даются рекомендации для руководителей высокотехнологичных компаний при разработке стратегии управления организациями, работающими на рынках с возрастающей отдачей. Данные рекомендации могут быть также полезны руководителям цифровых технологических платформ, развитие которых также подчиняется закону возрастающей отдачи, зачастую проявляющейся через экономию на масштабе, сетевые экстерналии и кривую опыта.
Настоящее исследование представляет собой анализ истории
успеха компании Додо Пицца, быстро растущей международной сети ресторанов быстрого питания, запущенной в России в 2011 году предпринимателем Федором Овчинниковым. Умело используя цифровые технологии, Ф. Овчинников смог развить небольшую компанию по приготовлению пиццы до одной из крупнейших сетей фастфуда в России. За период 2011-2021 гг. лет его компания достигла выручки в 500 миллионов долларов США в год и в настоящее время продолжает завоевывать мировой рынок, активно расширяясь на международной арене. Кейс Додо-Пиццы показывает, как традиционная и достаточно консервативная отрасль ресторанов быстрого питания, в которой доминируют такие международные лидеры, как Papa John’s и Domino’s Pizza, сталкивается с вызовами от новичка в этой индустрии, осуществившего успешную цифровую трансформацию. В статье анализируются причины успеха компании с точки зрения различных теорий менеджмента и приводятся размышления о том, как цифровая революция помогает построить устойчивый бизнес с высокой управляемостью и прозрачностью для клиентов и стейкхолдеров.
This chapter will show how DPM may provide the actors in a public value-driven performance regime with the methodological framework to implement policy learning for assessing community outcomes, illustrated by different examples. Before presenting the empirical work, the following sections will discuss the main methodological challenges associated with outcome-based performance assessment to set the field for showing how DPM may implement policy learning in public value-driven performance regimes.
In this paper, we employ system dynamics to study the combined effect of extended payment terms and a buyer’s supply risk management practices on two outcomes: the supplier’s bankruptcy risk and the buyer’s financial bottom line. In conjunction with payment terms, we model the impact of two commonly recommended supply chain risk management (SCRM) practices: quick response to supply disruptions and use of a secondary (backup) source. Among other results, we uncover a feedback mechanism that contributes to the negative effect of extended payment terms on a supplier’s finances and show that longer payment terms can worsen buyer outcomes, especially when the supplier faces a higher risk of disruptions. We also show that, when considered alongside extended payment terms, common SCRM practices may not always be beneficial for buyer firms. Our research suggests decisions related to SCRM and extended payment terms should not be made independently.
Creating new business models is crucial for the implementation of clean technologies for industrial decarbonization. With incomplete knowledge of market processes and uncertain conditions, assessing the prospects of a technology-based business model is challenging. This study combines business model innovation, system dynamics, and exploratory model analysis to identify new business opportunities in a context of sociotechnical transition and assess their prospects through simulation experiments. This combination of methods is applied to the case of a potential business model for Distribution System Operators aiming at ensuring the stability of the electrical grid by centralizing the management of flexible loads in industrial companies. A system dynamics model was set up to simulate the diffusion of flexible electrification technologies. Through scenario definition and sensitivity analysis, the influence of internal and external factors on diffusion was assessed. Results highlight the central role of energy costs and customer perception. The chosen combination of methods allowed the formulation of concrete recommendations for coordinated action, explicitly accounting for the various sources of uncertainty. We suggest testing this approach in further business model innovation contexts.
This research aims to create a model for predicting clean water need in the urban area Sentul City currently and next 30 (thirty years). To create the model, it is required data which are useful for forecasting the inhabitant number year to year. There are some general-used models for forecasting the inhabitant number, including to arithmatic, exponential, and least square method. The inhabitant number forecast in this research used an exponential method, as recommended in the Guidance of River Area Water Resource by Directorate General of Water Resource in 2001. The researcher used the software Stella 9.0.1 for simplifying the modeling process, projecting the inhabitant number, predicting the clean water need, and figuring the graphics. Besides this software, Excel programme was also used. According to data analysis result, the equation models to predict water need (m3/year) in Sentul City are stated as follows; for rural area inhabitants: YDn = 1 927 309 (1 + 0.0303)n; for urban area inhabitants: YKn = 1 808 940 + 217 248*n; and for total inhabitants: YSCn = YDn + YKn.Keywords: inhabitant number, geomeric method, clean water need prediction
The basic goal of this work is to present the evolution of strategic management theory under the influence of behavioral economics. The work is in a broad resource-based view that has dominated the theoretical concepts of strategic management since the early 1990s. The main resource of modern enterprises is their employees, and above all the managers who manage them.
The first two chapters of the book are introductory and present the evolution of strategic management, as well as the assumptions of behavioral economics. The next four chapters present the growing impact of behavioral concepts on: creating an evolutionary environment in an enterprise, changes in the theory of competing, the evolution of the concept of strategic leadership and creating the value of an enterprise. Chapter seven describes bibliometric research that has shown the growing importance of concepts specific to behavioral economics, as well as strengthening the interdisciplinary nature of strategic management. ///
Zarządzanie strategiczne jest subdyscypliną nauk o zarządzaniu mocno osadzoną w realiach współczesnych przedsiębiorstw. Rosnące znaczenie zarządzania strategicznego wynika z jego zdolności do integrowania wiedzy z różnych obszarów, a w tym przede wszystkim: ekonomii, finansów, marketingu, socjologii i psychologii. Celem podstawowym niniejszej pracy jest przedstawienie ewolucji teorii zarządzania strategicznego pod wpływem szeroko rozumianej ekonomii behawioralnej. Praca mieści się w szerokim nurcie tzw. podejścia zasobowego, które od początków lat 90. XX wieku zdominowało teoretyczne koncepcje zarządzania strategicznego. Głównym zasobem współczesnych przedsiębiorstw są ich pracownicy, a przede wszystkim kierujący nimi menedżerowie.
Dwa pierwsze rozdziały książki mają charakter wprowadzający i prezentują ewolucję zarządzania strategicznego, a także założenia ekonomii behawioralnej. Cztery kolejne rozdziały przedstawiają rosnący wpływ koncepcji behawioralnych na: tworzenie środowiska ewolucyjnego w przedsiębiorstwie, zmiany w teorii konkurowania, ewolucję koncepcji przywództwa strategicznego i kreowanie wartości przedsiębiorstwa. Rozdział siódmy opisuje przeprowadzone badania bibliometryczne, które wykazały rosnące znaczenie pojęć charakterystycznych dla ekonomii behawioralnej, a także silne wzmocnienie interdyscyplinarnego charakteru zarządzania strategicznego. Dorobek związany z teorią zasobową i teorią instytucjonalną firmy nie zanika, a liczba prac do nich się odwołujących ciągle rośnie. Nastąpiła jednak stagnacja wykorzystania koncepcji dotyczących teorii konkurencji, a nawet spadek - w przypadku koncepcji trwałej przewagi konkurencyjnej.
In this chapter, we show how the tools and principles of system dynamics facilitate the integration of operations management and behavioral sciences. At its core, system dynamics develops process‐based theories that explicitly examine the interactions between the physical and institutional structures of operational systems and the behavioral decision rules of the agents in those systems. We first describe the system dynamics perspective on decision‐making in dynamic environments. We then present a set of guiding principles to formulate representations of behavioral decision making and describe the methods used by system dynamists to gather data to formulate those decision rules. We use two detailed formulation examples from operational contexts to show how formal representation of the decision‐making process was used to gain operational insights through simulation and formal analytical techniques. This chapter concludes by exploring potential areas of future research in behavioral operations leveraging the strengths of system dynamics.
This chapter defines industry evolution, and identifies the drivers responsible for industry evolution. It describes the behavior of the companies and its effects on industry evolution. The dynamic behavioral model of industry evolution that determines the industry dynamic contains the key investment decisions made using two information sources: the evolution of the number of actual customers; and the perceived market saturation. The chapter explains an illustrative system dynamics model based on the dynamic behavioral model of industry evolution. The dynamic behavior is controlled by two feedback loops: a reinforcing loop that controls the growth and decline of companies; and a balancing loop that determines the evolution of the market. The chapter provides some examples of the use of management science tools, prescriptive tools, to understand and manage the evolution of industries. Industry evolution patterns can be inferred based on the strategy types that most of the companies follow in the industry.
The fungibility of organizational slack provides firms significant latitude in addressing both internal and market pressures. A vast literature suggests that slack influences firm performance; however, the empirical record is mixed, and the underlying mechanism linking slack to performance remains ambiguous. We address these issues by theoretically expanding the slack–performance model to include mediation. Specifically, we develop and test a model in which a firm’s competitive behaviours direct the utilization of slack toward the realization of firm performance. Our meta‐analytic‐based structural equation model supports partial mediation, showing that competitive behaviours provide some resolution to the conflicted understanding of how slack affects performance. Further, we provide value to the slack literature by consolidating the evidence for the effects of various types and forms of organizational slack. Beyond providing robustness to our theoretical model, doing so offers a more complete understanding of how operationalizations of slack and performance outcomes matter.
This chapter discusses a series of possible extensions to the model developed in Chapters 2 to 7. These Chapters were based on a series of simplifying assumptions made to concentrate on the essential insights related to the dynamics of growth from diffusion. However, for real situations, the model boundary may need to be extended or the model may need a more detailed representation of aspects. The adaptation of the model is discussed together with each possible extension.
In this last chapter, the work process used in this book is reviewed and explained from the viewpoint of the system dynamics methodology. The usefulness of this methodology for dynamic management situations in general is underlined. Also, the system dynamics competence framework is introduced and it is shown that the reader has by now completed the beginner stage. Recommendations for continuing the learning process with links to other existing resources are made.
Research Summary: Low‐price market entries, aiming for rapid sales growth, tend to prompt strong competitive reactions. This research explores whether and how firms using low‐price entry strategies can mitigate retaliatory incumbent reactions. An experiment with 656 managers shows that entrants can attenuate the strength of incumbents’ responses by fostering perceptions of high aggressiveness or low commitment. Entrants may be able to accomplish this by adjusting their entry strategy to embed (subtle) cues of aggressiveness and (lack of) commitment. A replication experiment with university students reinforces our overall theoretical argument. However, the results also indicate that the interpretation of cues embedded in the entry strategy may be affected by the experience of incumbent firm managers. Overall, these results clarify the cognitive foundations of competitive responses to market entry.
Managerial Summary: What drives incumbents to respond strongly to market entries, and what can the entrant, if anything, do to mitigate those responses? This research offers empirical evidence and theoretical insights for managers faced with these questions by shedding light on the thinking processes preceding competitive responses. The study shows that while managers are motivated to respond strongly to market entries that appear to be highly consequential to their business, these responses may be mitigated if the entrant manages to foster perceptions of high aggressiveness or low commitment to the market. Managers form these perceptions in part on the basis of the entrant’s behavior, creating an opportunity for entrants to adjust their entry strategies in a manner that demotivates strong competitive responses.
Many e-businesses have pursued a ‘get big fast’ (GBF) strategy, pricing low and marketing heavily to build their user base, in the belief that there were significant sources of increasing returns favoring early entrants and large players. Until early 2000 the capital markets rewarded the GBF strategy, but since then market values have collapsed and scores of new-economy firms have failed. The rise and fall of the dot coms is not merely a case of a speculative bubble. Many firms stumbled when they grew so rapidly that they were unable to fulfill orders or provide quality service. GBF proponents focus on the positive feedbacks that create increasing returns and favor aggressive firms, but have not paid adequate attention to the negative feedbacks that can limit growth, e.g., service quality erosion. The faster a firm grows, the stronger these negative feedbacks may be. We address these issues with a formal dynamic model of competition among online and click-and-mortar companies in business-to-consumer e-commerce. The model endogenously generates demand, market share, service quality, employee skill and retention, content creation, market valuation, and other key variables. The model is calibrated to the online book market and Amazon.com as a test case. We explore growth strategies for e-commerce firms and their sustainability under different scenarios for customer, competitor, and capital market behavior. Copyright © 2003 John Wiley & Sons, Ltd.
Studies in the psychology of individual choice have identified numerous cognitive and other bounds on human rationality, often producing systematic errors and biases. Yet for the most part models of aggregate phenomena in management science and economics are not consistent with such micro-empirical knowledge of individual decision-making. One explanation has been the difficulty of extending the experimental methods used to study individual decisions to aggregate, dynamic settings. This paper reports an experiment on the generation of macrodynamics from microstructure in a common managerial context. Subjects manage a simulated inventory distribution system which contains multiple actors, feedbacks, nonlinearities, and time delays. The interaction of individual decisions with the structure of the simulated firm produces aggregate dynamics which systematically diverge from optimal behavior. An anchoring and adjustment heuristic for stock management is proposed as a model of the subjects' decision processes. Econometric tests show the rule explains the subjects' behavior well. The estimation results identify several `misperceptions of feedback' which account for the poor performance of the subjects. In particular, subjects are shown to be insensitive to the feedbacks from their decisions to the environment. Finally, the generality of the results is considered and implications for behavioral theories of aggregate social and economic dynamics are explored.
How can firms profitably give away free products? This paper provides a novel answer and articulates trade-offs in a space of information product design. We introduce a formal model of two-sided network externalities based in textbook economics—a mix of Katz and Shapiro network effects, price discrimination, and product differentiation. Externality-based complements, however, exploit a different mechanism than either tying or lock-in even as they help to explain many recent strategies such as those of firms selling operating systems, Internet browsers, games, music, and video.
The model presented here argues for three simple but useful results. First, even in the absence of competition, a firm can rationally invest in a product it intends to give away into perpetuity. Second, we identify distinct markets for content providers and end consumers and show that either can be a candidate for a free good. Third, product coupling across markets can increase consumer welfare even as it increases firm profits.
The model also generates testable hypotheses on the size and direction of network effects while offering insights to regulators seeking to apply antitrust law to network markets.
Research over two decades has advanced the knowledge of how to assess predictive validity. We believe this has value to information systems (IS) researchers. To demonstrate, we used a widely cited study of IS spending. In that study, price-adjusted diffusion models were proposed to explain and to forecast aggregate U.S. information systems spending. That study concluded that such models would produce more accurate forecasts than would simple linear trend extrapolation. However, one can argue that the validation procedure provided an advantage to the diffusion models. We reexamined the results using an alternative validation procedure based on three principles extracted from forecasting research: (1) use ex ante (out-of-sample) performance rather than the fit to the historical data, (2) use well-accepted models as a basis for comparison, and (3) use an adequate sample of forecasts. Validation using this alternative procedure did confirm the importance of the price- adjustment, but simple trend extrapolations were found to be more accurate than the price-adjusted diffusion models.
Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 1992. Includes bibliographical references (leaves 339-358). by Christian Peter Erik Kampmann. Ph.D.
This paper proposes an empirical framework for measuring the effects of entry in concentrated markets. Building on models of entry in atomistically competitive markets, the authors show how the number of producers in an oligopolistic market varies with changes in demand and market competition. These analytical results structure the authors' empirical analysis of competition in five retail and professional industries. Using data on geographically isolated monopolies, duopolies, and oligopolies, they study the relationship between the number of firms in a market, market size, and competition. The authors' empirical results suggest that competitive conduct changes quickly as the number of incumbents increases. Copyright 1991 by University of Chicago Press.
Data on 37 chemical products are used to test a number of hypotheses about the learning curve and industrial price behavior. The results document a strong and consistent learning effect. Learning is found to be a function of cumulated industry output and cumulated investment rather than calendar time. Standard economies of scale appear significant but small in magnitude relative to the learning effect. Variations in the slope of the learning curve are linked to differences in R&D expenditures and capital intensity. Market concentration is found to be a strong influence on price flexibility and the timing of learning-related price changes.
The canonical model in economics considers people to be rational and self-regarding. However, much evidence challenges this
view, raising the question of when “Economic Man” dominates the outcome of social interactions, and when bounded rationality
or other-regarding preferences dominate. Here we show that strategic incentives are the key to answering this question. A
minority of self-regarding individuals can trigger a “noncooperative” aggregate outcome if their behavior generates incentives
for the majority of other-regarding individuals to mimic the minority's behavior. Likewise, a minority of other-regarding
individuals can generate a “cooperative” aggregate outcome if their behavior generates incentives for a majority of self-regarding
people to behave cooperatively. Similarly, in strategic games, aggregate outcomes can be either far from or close to Nash
equilibrium if players with high degrees of strategic thinking mimic or erase the effects of others who do very little strategic
thinking. Recently developed theories of other-regarding preferences and bounded rationality explain these findings and provide
better predictions of actual aggregate behavior than does traditional economic theory.
We discuss the cognitive and the psy- chophysical determinants of choice in risky and risk- less contexts. The psychophysics of value induce risk aversion in the domain of gains and risk seeking in the domain of losses. The psychophysics of chance induce overweighting of sure things and of improbable events, relative to events of moderate probability. De- cision problems can be described or framed in multiple ways that give rise to different preferences, contrary to the invariance criterion of rational choice. The pro- cess of mental accounting, in which people organize the outcomes of transactions, explains some anomalies of consumer behavior. In particular, the acceptability of an option can depend on whether a negative outcome is evaluated as a cost or as an uncompensated loss. The relation between decision values and experience values is discussed. Making decisions is like speaking prose—people do it all the time, knowingly or unknowingly. It is hardly surprising, then, that the topic of decision making is shared by many disciplines, from mathematics and statistics, through economics and political science, to sociology and psychology. The study of decisions ad- dresses both normative and descriptive questions. The normative analysis is concerned with the nature of rationality and the logic of decision making. The de- scriptive analysis, in contrast, is concerned with peo- ple's beliefs and preferences as they are, not as they should be. The tension between normative and de- scriptive considerations characterizes much of the study of judgment and choice. Analyses of decision making commonly distin- guish risky and riskless choices. The paradigmatic example of decision under risk is the acceptability of a gamble that yields monetary outcomes with specified probabilities. A typical riskless decision concerns the acceptability of a transaction in which a good or a service is exchanged for money or labor. In the first part of this article we present an analysis of the cog- nitive and psychophysical factors that determine the value of risky prospects. In the second part we extend this analysis to transactions and trades. Risky Choice Risky choices, such as whether or not to take an umbrella and whether or not to go to war, are made without advance knowledge of their consequences. Because the consequences of such actions depend on uncertain events such as the weather or the opponent's resolve, the choice of an act may be construed as the acceptance of a gamble that can yield various out- comes with different probabilities. It is therefore nat- ural that the study of decision making under risk has focused on choices between simple gambles with monetary outcomes and specified probabilities, in the hope that these simple problems will reveal basic at- titudes toward risk and value. We shall sketch an approach to risky choice that
This article reflects upon and updates our prize-winning paper, ‘First-mover advantages,’ which was published in SMJ 10 years ago. We discuss the evolution of the literature over the past decade and suggest opportunities for continuing research. In particular, we see benefits from linking empirical findings on first-mover advantages with the complementary stream of research on the resource-based view of the firm. © 1998 John Wiley & Sons, Ltd.
This paper reviews research on dynamic decision making, i.e., decision making under conditions which require a series of decisions, where the decisions are not independent, where the state of the world changes, both autonomously and as a consequence of the decision maker's actions, and where the decisions have to be made in real time. It is difficult to find useful normative theories for these kinds of decisions, and research thus has to focus on descriptive issues. A general approach, based on control theory, is proposed as a means to organize research in the area. An experimental paradigm for the study of dynamic decision making, that of computer stimulated microworlds, is discussed, and two approaches using this paradigm are described: the individual differences approach, typical of German work in the tradition of research on complex problem solving, and the experimental approach. In studies following the former approach, the behavior of groups differing in performance is compared, either with respect to strategies or with respect to performance on psychological tests. The results show that there are wideinterindividual differences in performance, but no stable correlations between performance in microworlds and scores on traditional psychological tests have been found. Experimental research studying the effects of system characteristics, such as complexity and feedback delays, on dynamic decision making has shown that decision performance in dynamic tasks is strongly affected by feedback delays and whether or not the decisions have side effects. Although neither approach has led to any well-developed theory of dynamic decision making so far, the results nevertheless indicate that we are now able to produce highly reliable experimental results in thelaboratory, results that agree with those found in field studies of dynamic decision making. This shows that an important first step towards a better understanding of these phenomena has been taken.
Use of progress functions in strategic planning has led to the principle that firms can expect continuous cost improvements with cumulative output. But finding policies that result in continuous cost improvements requires a better understanding of the dynamics underlying firms' progress functions. This paper draws on more than 200 empirical and theoretical studies of progress functions in industrial engineering, economics, and management. Factors causing progress fall into four categories that vary in origin (exogenous or endogenous) and in type (autonomous or induced).
This study tests the hypothesis that prices in new markets change in a pattern similar to and related to the product life cycle. Three stages of price decline have been identified in electronic product markets and can be associated with the introduction, take-off and growth, and maturity stages of the product life cycle. The study integrates the methodologies of the product life cycle concept and experience curve theory and analyses price and product behaviour for radios, monochrome (black and white) televisions, colour televisions and video cassette recorders. The empirical evidence supports the hypothesis and suggests, as a general rule, that a better understanding of a product's life cycle and the factors that affect it can aid in the development of price forecasts. In fact, the marriage of experience curve theory and the product life cycle concept provides a methodology for quantifying the impact of influential factors and gives the analyst the ability to bound the uncertainty around price forecasts, ultimately leading to better strategic decisions, today, for tomorrow's markets.
This paper examines product policy in relation to the experience curve and product life cycle concepts in the context of the experience of the thirteen major firms in the Western European synthetic fibers industry. It examines the hypothesis based on Boston Consulting Group and the Profit Impact of Market Share (PIMS) evidence that late entrants to a market will be at a competitive disadvantage because they lack the accumulated experience of the pioneering firms. For each of the three main synthetic fibres, acrylic, nylon and polyester, it was found that the early entrants who established major market shares early in the growth phase of the product life cycle were able to maintain that leadership nearly twenty years later. In contrast not only did almost all the late entrants fail to achieve significant market shares but in the difficult market conditions between 1974 and 1981 they provided seven out of nine market withdrawals.
The nature and rationality of expectations are hotly debated in economics and management science. Expectations are usually portrayed in behavioral simulation models and system dynamics as adaptive learning processes. This paper presents a behavioral model of trend expectation formation. The model assumes expectations about the growth rate of a quantity are formed adaptively from the recent growth rate of the input variable itself. The model is then tested directly against actual forecasts in two quite different domains: short-term expectations of inflation and long-term energy demand forecasts. In both cases the model replicates the evolution of the expectations quite well over extended time periods. The results support the use of adaptive expectations and trend extrapolation. The results also suggest the presence of additional judgmental heuristics which can have dynamic and policy significance. In particular, there seem to be substantial conservatisms in both inflation expectations and energy demand forecasts: forecasters systematically underestimate the growth rate of the input. Such conservatisms are consistent with the empirical literature on judgment and decision making. The results show it is possible to test the expectation formation processes assumed in behavioral simulation models; implications for use of adaptive expectations in behavioral models when empirical data are unavailable are also discussed.
The Theory of Industrial Organization is the first primary text to treat the new industrial organization at the advanced-undergraduate and graduate level. Rigorously analytical and filled with exercises coded to indicate level of difficulty, it provides a unified and modern treatment of the field with accessible models that are simplified to highlight robust economic ideas while working at an intuitive level. To aid students at different levels, each chapter is divided into a main text and supplementary section containing more advanced material. Each chapter opens with elementary models and builds on this base to incorporate current research in a coherent synthesis. Tirole begins with a background discussion of the theory of the firm. In part I he develops the modern theory of monopoly, addressing single product and multi product pricing, static and intertemporal price discrimination, quality choice, reputation, and vertical restraints. In part II, Tirole takes up strategic interaction between firms, starting with a novel treatment of the Bertrand-Cournot interdependent pricing problem. He studies how capacity constraints, repeated interaction, product positioning, advertising, and asymmetric information affect competition or tacit collusion. He then develops topics having to do with long term competition, including barriers to entry, contestability, exit, and research and development. He concludes with a "game theory user's manual" and a section of review exercises.
(This article originally appeared in Management Science, January 1969, Volume 15, Number 5, pp. 215–227, published by The Institute of Management Sciences.)
A growth model for the timing of initial purchase of new products is developed and tested empirically against data for eleven consumer durables. The basic assumption of the model is that the timing of a consumer's initial purchase is related to the number of previous buyers. A behavioral rationale for the model is offered in terms of innovative and imitative behavior. The model yields good predictions of the sales peak and the timing of the peak when applied to historical data. A long-range forecast is developed for the sales of color television sets.
An important task in the analysis of a behavioral simulation model is to explain clearly how the model's organizational assumptions lead to its simulated behavior. All too often, model-based arguments involve an uncomfortable "leap of logic" between equations and consequences. This paper proposes two methods of analysis, premise description and partial model testing, which provide stepping stones between model equations and their simulated consequences. Premise description examines the bounded rationality of policies or decision functions in the model, pointing out the process and cognitive limitations assumed in decisionmaking. Partial model tests expose the intended rationality of smalt combinations of policies, showing that policies produce "sensible" actions with respect to their premises. The application of those methods is illustrated with a simulation model of a sales organization in which sales-force productivity is prone to decline. The behavior of productivity is traced to dysfunctional interactions between objectives, overtime, and salesforce motivation.
This paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream. The interdependency of cost and demand on cumulative production makes the problem inherently dynamic. Cost is assumed to be declining with cumulative production (learning curve effect), while demand is a function of price and cumulative sales, representing word-of-mouth and saturation effects.
The paper addresses this problem in a general framework that includes several previous results as special cases, and provides new insights in other situations. While the learning curve and word-of-mouth effect cause prices to be lower than the price that maximizes immediate revenues, the saturation factor has the opposite effect. The price path over time is affected by these factors and the interest rate. We characterize the price path under several different situations and interpret the results for policy guidelines.
This paper re-examines the relationship between the R&D intensity of an industry and its level of concentration, from the perspective of the Bounds approach to market structure. In so doing, it proposes an index which summarises those aspects of technology and tastes that are relevant to the determination of a lower bound to concentration.
In recent years laboratory experiments have shed significant light on human behavior in a variety of microeconomic and decision-theoretic contexts including auctions, bargaining, and preference elicitation (Plott 1986, Smith 1986, Slovic and Lichtenstein 1983). Despite the success of experimental techniques in the domain of the individual and small group, there has been comparatively little work relating the behavior of decision makers to the dynamics of larger organizations such as an industry or the macroeconomy. Experiments in both economics and psychology have focussed (with significant exceptions, e.g. Hogarth and Makridakis 1981, Kleinmuntz 1985, Brehmer 1986, Smith 1986) on static and discrete judgments. Hogarth (1981, 198) emphasizes
…the continuous, adaptive nature of the judgmental processes used to cope with a complex, changing environment…. With few exceptions…judgment researchers have focussed on discrete incidents (particular actions, predictions, and choices) that punctuate these continuous processes; furthermore, task environments are typically conceptualized to be stable.…. [I]nsufficient attention has been paid to the effect of feedback between organism and environment.
The purpose of the M2-Competition is to determine the post sample accuracy of various forecasting methods. It is an empirical study organized in such a way as to avoid the major criticism of the M-Competition that forecasters in real situations can use additional information to improve the predictive accuracy of quantitative methods. Such information might involve inside knowledge (e.g. a machine breakdown, a forthcoming strike in a major competitor, a steep price increase, etc.), be related to the expected state of the industry or economy that might affect the product(s) involved, or be the outcome of a careful study of the historical data and special care in procedure/methods employed while forecasting. The M2-Competition consisted of distributing 29 actual series (23 of these series came from four companies and six were of macro economic nature) to five forecasters. The data covered information including the September figures of the year involved. The objective was to make monthly forecasts covering 15 months starting from October and including December of the next year. A year later the forecasters were provided with the new data as they had become available and the process of predicting for 15 months ahead was repeated. In addition to being able to incorporate their predictions about the state of the economy and that of the industry the participating forecasters could ask for any additional information they wanted from the collaborating companies. Although the forecasters had additional information about the series being predicted the results show few or no differences in post-sample forecasting accuracy when compared to those of the M-Competition or the earlier Makridakis and Hibon empirical study.
There has been a veritable industry of forecasting models in recent decades, spurred partly by planners' search for certainty and partly by the data crunching capabilities of computers. In this article, Sanjay-kumar Rao test two families of models on some common data sets to see how they compare. He examines how well the models fit the data and how reliable they are as forecasting tools.
Using extensive government survey data, ‘completion patterns’ are derived for US nonresidential structures over the period 1961–1991. Value-weighted construction periods average five to six quarters, with enough variation over time to undermine somewhat the interpretation of ‘time-to-build’ parameters as ‘structural’ in nature. The rapid time path of completions raises some questions about lengthy investment-spending lags typically estimated in econometric studies.
Investment in lumpy capacity is usually fraught with uncertainty. Divergent opinions about the future can then lead to adverse selection: optimistic competitions tend to be the ones that expand. Few firms correct this bias formally. They rely, instead, on payback criteria, portfolio planning, risk-sharing and self-restraint.
Twenty years ago, behavioral economics did not exist as a field. Most economists were deeply skeptical--even antagonistic--toward the idea of importing insights from psychology into their field. Today, behavioral economics has become virtually mainstream. It is well represented in prominent journals and top economics departments, and behavioral economists, including several contributors to this volume, have garnered some of the most prestigious awards in the profession. This book assembles the most important papers on behavioral economics published since around 1990. Among the 25 articles are many that update and extend earlier foundational contributions, as well as cutting-edge papers that break new theoretical and empirical ground. Advances in Behavioral Economics will serve as the definitive one-volume resource for those who want to familiarize themselves with the new field or keep up-to-date with the latest developments. It will not only be a core text for students, but will be consulted widely by professional economists, as well as psychologists and social scientists with an interest in how behavioral insights are being applied in economics. The articles, which follow Colin Camerer and George Loewenstein's introduction, are by the editors, George A. Akerlof, Linda Babcock, Shlomo Benartzi, Vincent P. Crawford, Peter Diamond, Ernst Fehr, Robert H. Frank, Shane Frederick, Simon Gächter, David Genesove, Itzhak Gilboa, Uri Gneezy, Robert M. Hutchens, Daniel Kahneman, Jack L. Knetsch, David Laibson, Christopher Mayer, Terrance Odean, Ted O'Donoghue, Aldo Rustichini, David Schmeidler, Klaus M. Schmidt, Eldar Shafir, Hersh M. Shefrin, Chris Starmer, Richard H. Thaler, Amos Tversky, and Janet L. Yellen.
Proposes a theory that explains why smaller firms have higher and more variable growth rates than larger firms. Relying on employer heterogeneity and market selection to generate patterns of employer growth and failure, the model states that efficient firms grow and survive while inefficient firms decline and fail, regardless of firm size. However, firms that fail are actually firms that, if given more time to succeed, would have grown more slowly. These slow growing firms are most often smaller firms. Also provided is a behavior characterization of entry and prices in equilibrium, which is defined as a pair of functions that characterize optimal output and exit behavior of firms. (SFL)
Pioneering work on an important new approach to economics.
The Changing Face of Economics gives the reader a sense of the modern economics profession and how it is changing. The volume does so with a set of nine interviews with cutting edge economists, followed by interviews with two Nobel Prize winners, Paul Samuelson and Kenneth Arrow, reflecting on the changes that are occurring. What results is a clear picture of today's economics--and it is no longer standard neoclassical economics. The interviews and commentary together demonstrate that economics is currently undergoing a fundamental shift in method and is moving away from traditional neoclassical economics into a dynamic set of new methods and approaches. These new approaches include work in behavioral economics, experimental economics, evolutionary game theory and ecological approaches, complexity and nonlinear dynamics, methodological analysis, and agent-based modeling. David E. Colander is Professor of Economics, Middlebury College. J. Barkley Rosser, Jr., is Professor of Economics and Kirby L. Kramer Jr. Professor of Business Administration, James Madison University. Richard P. F. Holt is Professor of Churchill Honors and Economics, Southern Oregon University.
This paper examines the effect of learning curve spillovers on market structure and performance. We derive a simple characterization
of the “true” marginal cost for a broad class of learning curves, and use calculated examples to show that spillovers substantially
undercut the barriers to entry erected by proprietary learning. Unlike the case of cost-reducing research and development,
spillovers also tend to improve market performance; the increased efficiency of the industrywide reduction process typically
outweighs the decrease in firms' incentives to reduce costs by expanding output.
Several empirical regularities concerning firm growth rates and industry firm-size distributions have been developed by studying primarily mature industries. The primary purpose of this article is to bring together and extend empirical regularities on the evolution of new industries and to use these regularities to gain further insight into the forces governing industry evolution. To explain these regularities, a model is constructed which emphasizes how factors governing the early evolution of industries may shape their market structure at maturity. It stresses how chance events and exogenous factors that influence the number of potential entrants to the industry, the growth rate of incumbents, and the ease of imitation of industry leaders will influence the ultimate number and size distribution of firms in the industry.
This article studies the implications of learning-by-doing for market conduct and performance. We use a general continuous-time model to show that output increases over time in the absence of strategic interactions, and that a monopolist learns too slowly, compared with the social optimum. We then specialize to a two-period model with linear demand and learning to analyze the case in which firms do consider the effect of their learning on the actions of their rivals. We show that strategic incentives can induce firms to choose decreasing output paths, and that a little diffusion of learning across firms increases output if firms are naive, but decreases output if firms play strategically. We further show that increased learning improves welfare, and that welfare can be improved by using a balanced-budget tax-subsidy scheme which transfers production incentives to the less competitive "mature" phase of the industry.
This article develops a model of competitive interaction and industry evolution in the presence of a learning curve. The learning curve is a function relating the unit costs of the individual firm to accumulated volume. The responses of the model to shifts in parameters are explored through calculated examples. The paper also used a two-period model to explore differences between open and closed-loop equilibria, and to assess the impact of learning spillover effects from one firm to the next.
This paper studies the strategic interaction among firms in a growing market. It focuses upon the investment decisions of the firms. Central to the analysis is the idea that investment and growth for the firm are constrained by physical and financial factors. Firms that enter early and/or firms that can grow rapidly can make preemptive investments. The paper studies the optimal levels of preemptive investment and the implications for the long-run structure of the market. The analysis of optimal preemption is similar in spirit to the von Stackelberg equilibrium concept in oligopoly theory.
Change is accelerating, and as the complexity of the systems in which we live grows, so do the unanticipated side effects of human actions, further increasing complexity. Many scholars call for the development of systems thinking to improve our ability to manage wisely. But how do people learn in and about complex dynamic systems? Learning is a feedback process in which our decisions alter the real world, we receive information feedback about the world and revise the decisions we make and the mental models that motivate those decisions. Unfortunately, in the world of social action various impediments slow or prevent these learning feedbacks from functioning, allowing erroneous and harmful behaviors and beliefs to persist. The barriers to learning include the dynamic complexity of the systems themselves; inadequate and ambiguous outcome feedback; systematic mispercep-tions of feedback; inability to simulate mentally the dynamics of our cognitive maps; poor interpersonal and organizational inquiry skills; and poor scientific reasoning skills. To be successful, methods to enhance learning about complex systems must address all these impediments. Effective methods for learning in and about complex dynamic systems must include (1) tools to elicit participant knowledge, articulate and reframe perceptions, and create maps of the feedback structure of a problem from those perceptions; (2) simulation tools and management flight simulators to assess the dynamics of those maps and test new policies; and (3) methods to improve scientific reasoning skills, strengthen group process, and overcome defensive routines for individuals and teams.
We report on the opinions of 49 forecasting experts on guidelines for extrapolation methods. They agreed that seasonality, trend, aggregation, and discontinuities were key features to use for selecting extrapolation methods. The strong agreement about the importance of discontinuities was surprising because this topic has been largely ignored in the forecasting literature.
En la UE se ha estimado que los costes de la congesti�n representan el 2% de su PIB y que el coste de la poluci�n del aire y ruido supera el 0,6% del PIB, siendo alrededor del 90% de los mismos ocasionados por el transporte terrestre. Ante este hecho y el continuo aumento de la demanda del transporte privado frente al p�blico para los desplazamientos, muchos abogan por una conjunci�n de medidas tanto restrictivas como alternativas al uso del coche. Dentro de las primeras se encuentra el establecimiento de un peaje o una tarifa por el uso de las carreteras, medida que aunque desde el punto de vista de la Teor�a Econ�mica es la manera m�s eficiente para corregir el fallo de mercado que supone la congesti�n, desde la visi�n de pol�ticos y del p�blico no goza de gran aceptaci�n. En este trabajo se pretende hacer una simulaci�n de los efectos que tendr�a sobre el bienestar social de la implantaci�n de una medida de este tipo en la Bah�a de C�diz. In the European Union it has been estimated that the congestion cost are the 2% of the gross domestic product and the cost of pollution and noise is over 0,6%, olso it is known that the 90% of this cost are caused by overland transport. For this reason and for the always increasing demand of private transport, there are professionals who thinks that the solution have to be restrictive measures added to alternatives to the car. road pricing is a restrictive measures that for the economic theory is the most efficient way to solve congestion cost but for politicians and user of transport is not always accepted. In this study we are going to simulate road pricing for commuters in the Bah�a of C�diz and then it will be estimated welfare effects.
This paper discusses firm behavior, market performance, and the public and private institutions that arise in systems markets, i.e., markets where consumers use compatible components together to generate benefits. In such markets, which include communications networks and 'hardware/software' networks, popular products are inherently more valuable. These 'network effects' can drive corporate strategies and are critical in understanding innovation in many high-technology markets. The discussion here emphasizes the dynamics of consumer adoption decisions in the presence of network effects, competition between incompatible systems, and how suppliers choose which components are compatible and which are not. Copyright 1994 by American Economic Association.
Regularities concerning how entry, exit, market structure, and innovation vary from the birth of technologically progressive industries through maturity are summarized. A model emphasizing differences in firm innovative capabilities and the importance of firm size in appropriating the returns from innovation is developed to explain the regularities. The model also explains regularities regarding the relationship within industries between firm size and firm innovative effort, innovative productivity, cost, and profitability. It predicts that over time firms devote more effort to process innovation but the number of firms and the rate and diversity of product innovation eventually wither. Copyright 1996 by American Economic Association.
In this paper four alternative quarterly econometric models of investment behavior are compared with regard to predictive performance. Predictive performance may be assessed in two ways: (i) We compare prediction errors for a period of prediction with errors for a period of fit. (ii) We fit investment functions for both periods and test for structural change. These two procedures may be viewed as alternative tests of the hypothesis of structural change; the second is more powerful from the statistical point of view. Test of predictive performance supplement the comparisons of alternative models given in our preceding paper [17]. Goodness of fit may be exaggerated by consideration of a wide range of alternatives and selection of the one that fits best. If goodness of fit is exaggerated, a predictive test should produce evidence of structural change between the period of fit and the period of prediction. Of course, the better an econometric model fits the data, the more stringent this criterion for predictive performance. The econometric models included in our study are those of Anderson [1], Eisner [7], Jorgenson and Stephenson [19], and Meyer and Glauber [21]. On the basis of predictive performance the ranking of the alternative models is as follows: (1) Eisner, (2) Jorgenson-Stephenson, (3) Meyer-Glauber, and (4) Anderson. This ranking is similar to that resulting from comparisons based on goodness of it presented in our preceding paper [17]. For econometric models of quarterly investment behavior, the models that fit the best also have the best predictive performance.