Dynamics of dyadic competitive interaction

Abstract

In this study of firms’ entries into and exits from each other’s markets, we link research on multipoint competition to the emerging action-oriented, dyadic approach to interfirm rivalry by specifying market interdependencies between pairs of firms that condition their potential for rivalry over time. Our dynamic analysis of competitive interactions between pairs of commuter airlines in California reveals the idiosyncratic and asymmetric market microstructures that characterize dyadic competitive relationships and helps explain why firms grapple vigorously with some of their competitors while being passive toward others. We show that there is an inverted U-shaped relationship between firms’ rates of entry into and exit from each other’s markets and the level of multimarket contact in competitor dyads. We also show how this basic curvilinear effect varies from dyad to dyad as a function of relative levels of multimarket contact with competitors in other dyads and the relative sizes of competitors in a focal dyad. Copyright © 1999 John Wiley & Sons, Ltd.