COGNITION AND COMPETITIVE DYNAMICS: THE INFLUENCE OF SUBJECTIVE BELIEFS ON A FIRM'S LIKELIHOOD OF COMPETITIVE RESPONSE.

Much of competitive dynamics research has focused on modeling firm behavior by examining the influence of various decision making cues that are presumed to systematically give rise to predictable and highly similar cognitive interpretations amongst strategists at all firms. Such an approach is valuable because it outlines a central behavioral tendency of competitive response, or the way that most firms respond given a wide set of measurable situational constructs. We suggest, however, that such an approach also renders a necessarily simplified and incomplete explanation of competitive response because it cannot explain the unique, idiosyncratic and often inertial competitive behaviors of individual firms. We leverage research that suggests that subjective beliefs, because they vary widely across decision makers, are a likely source of variation in competitive behavior across firms, which is not being adequately modeled by current competitive dynamics research. To address this gap, we develop and test a straightforward but theoretically grounded model of the competitive response behavior of individual firms that simultaneously considers the effect of subjective beliefs, the implied cognitive biases associated with social and institutional cues, and the interactions between subjective beliefs and cues. We test hypotheses using a matched set of cognition and competitive interaction data for ten large firms over a seven year period. The results imply that strategists' subjective beliefs are not only strong determinants of competitive behavior, but that they are relatively inflexible in the face of either validating or invalidating information that may arise with the presence of strong social and institutional cues.