Research and teaching
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Samira Reis, Giacomo Negro, Olav Sorenson, Fabrizio Perretti, and Alessandro Lomi

The theory of resource partitioning proposes that competition among generalists in the center of a market can trigger a process of resource release that engenders a proliferation of specialist producers outside the center. Previous research has generally examined the relationship between this proliferation and market concentration – a correlate of competitive intensity in the center of the market. In this paper, we extend the theory by arguing that resource release also occurs as the degree of competitive overlap among producers in the center intensifies, even when concentration or other structural features do not vary; we expand its implications by demonstrating that increased competitive overlap in the market center should enhance the viability of producers positioned near the center more than those in the periphery; and we enrich and complete it by specifying the additional assumptions needed to extend the theory of resource partitioning to entry processes. Consistent with our expectations, an empirical examination of the Italian broadcast television industry, from 1992 to 2003, finds that the failure rates of both near-center and peripheral organizations decline in response to increasing competitive overlap in the programming of the national broadcasters, with the failure rates of the near-center organizations falling more than those of peripheral organizations. Increasing competitive overlap similarly stimulates the entry of near-center organizations more than peripheral ones.

Industrial and Corporate Change, 22 (2013): 459-487

Corporate demography and income inequality

August 7th, 2009 | Posted by admin in 2007 - (0 Comments)

Jesper B. Sørensen and Olav Sorenson

We examine the relationship between income inequality and corporate demography in regional labor markets and specify two mechanisms through which the number and diversity of employers in a labor market affect wage dispersion. Vertical differentiation, or variation in the ability of organizations of a particular kind to benefit from labor inputs, amplifies inequality through quality sorting, as the most productive employees in a particular domain pair with the most productive employers. Increasing horizontal differentiation—variation in the kinds of organizations—reduces inequality as individuals can more easily find firms interested in their distinctive attributes and talents. Our analysis of Danish census data provides support for each thesis. Increased numbers of organizations operating within an industry in a region, a proxy for vertical differentiation, increases wage dispersion in that industry-region. Variation in wages, however, declines with increased horizontal differentiation among employers; this is measured by the diversity of industries offering employment within a region and the variance in firm sizes in an industry-region.

American Sociological Review, 72 (2007): 766-783

Olav Sorenson, Susan McEvily, Charlotte Rongrong Ren, and Raja Roy

Although strategy research typically regards firm scope as a positional characteristic associated with performance differences, we propose that broad contemporary scope also provides insight into the routines that govern firm behavior. To attain broad scope, firms must repeatedly explore outside the boundaries of their current niche. Firms with broad niches therefore operate under a set of routines that repeatedly propel them into new market segments, expanding their niche. These niche expansions, however, involve risky organizational changes, behavior that disadvantages generalists relative to specialists, despite the positional value of broad scope. Empirical analyses of machine tool manufacturers and computer workstation manufacturers support this conjecture: (i) generalists introduce new products at a higher than optimal rate, thereby increasing their exit rates; and (ii) generalists also more frequently launch new models with novel features or targeted at new consumer segments rather than improving only incrementally on existing products, further accelerating their odds of failure. After adjusting for these behavioral differences, broad niche widths reduce exit rates, suggesting that they provide positional advantages. The paper discusses how this phenomenon may help to explain the diversification and multi-nationality discounts.

Strategic Management Journal, 27 (2006): 915-936

Link to workstation data at FIVE Project

Giacomo Negro and Olav Sorenson

We investigate the competitive consequence of vertical integration on organizational performance using a comprehensive dataset of U.S. motion picture production companies, which includes information on their vertical scope and competitive overlaps. Vertical integration appears to change the dynamics of competition in two ways: (i) it buffers the vertically integrated firms from environmental dependence and (ii) it intensifies competition among non-integrated organizations. In contrast to the existing literature, our results suggest that vertical integration has implications well beyond both the level of the individual transaction and even the internal efficiency of the integrated firm.

Advances in Strategic Management, 23 (2006): 367-403

Asymmetric selection among organizations

August 7th, 2009 | Posted by admin in 2003 - (0 Comments)

William P. Barnett, Aimee-Noelle Swanson, and Olav Sorenson

We discuss the creation of organizations and their survival as distinct selection processes, and consider the significance of their divergence. In particular, to understand the implications of entrepreneurial booms, we propose the possibility of asymmetric selection, where entry selection and exit selection differ from each other in strength. An observed increase in founding rates hence may reveal a decline in the selection threshold for entry—implying lower average fitness among boom-time entrants. When such an expansion occurs, organizations born during these periods of heightened entry should suffer higher failure rates in the fitness threshold required for survival remains stable or becomes more stringent. We also discuss other processes that might educe founding waves, and explain the different implications of these accounts for our empirical model. Estimates of the model support our theory of asymmetric selection in two out of three markets using a comprehensive dataset describing organizations in the U.S. computer industry.

Industrial and Corporate Change, 12 (2003): 673-695

Olav Sorenson

Is starting a new business more difficult in an emerging industry or in a mature industry? The density dependent model of organizational ecology maintains that the industry’s age is irrelevant; the number of firms currently occupying the market niche determines the industry’s competitive structure. Nevertheless, population-level learning predicts historical asymmetry in entry barriers. Over time, the average fitness of the surviving population members increases, making market entry more difficult. At the same time, surviving organizations become increasingly spread out across the resource space, providing niches that new firms can exploit. Thus, industry-level evolution systematically alters the environment that both existing organizations and new firms face. I offer a new specification for the founding rate model that synthesizes ecological and evolutionary perspectives. Tests of this model in the American automobile industry support its merit.

Social Science Research, 29 (2000): 307-326