Title
Bridging behavioral and economic theories of decline : organizational inertia, strategic competition, and chronic failure Bridging behavioral and economic theories of decline : organizational inertia, strategic competition, and chronic failure
Author
Faculty/Department
Faculty of Applied Economics
Publication type
article
Publication
Providence, R.I. :Institute for Operations Research and the Management Sciences ,
Subject
Economics
Source (journal)
Management science / Institute for Operations Research and the Management Sciences [Providence, R.I.] - Providence, R.I., 1954, currens
Volume/pages
44(1998) :4 , p. 501-519
ISSN
0025-1909
1526-5501
Carrier
E
Target language
English (eng)
Affiliation
University of Antwerp
Abstract
This paper is another plea for bridging behavioral and economic approaches to the study of competition in markets and strategy making by firms. The arguments focus on a specific case in point: the behavioral theory of organizational decline and the economic modeling of immediate exit. The arguments come in three steps. First, the literature on organizational decline is reviewed by organizing a framework that summarizes arguments from varying economic and organizational perspectives that have, for the most part, developed independently. Observations from empirical and theoretical studies are combined in order to investigate the causes, conditions, courses, and consequences of organizational downturn. Second, a theoretical argument is developed that explains voluntary exit and chronic failure by introducing a proxy of organizational inertia in a model of strategic Cournot duopoly. The key assumptions, which have a behavioral flavour that seemingly contradicts orthodox economics, are grounded in the theoretical and empirical literatures. The results of the model support the claim that pure profit maximizing behavior may be at the expense of organizational survival (DAveni 1990, p. 135). Third, by formulating two hypotheses and presenting tentative evidence from the chemical industry, the paper hopes to convincingly argue that such integrative models lead to empirical testing of interesting hypotheses. A key finding here is that inefficient firms may outlast their efficient rivals (cf. DAveni 1989a).
E-info
https://repository.uantwerpen.be/docman/iruaauth/6617e4/00aa7f8eace.pdf
Handle