The Effect of Recessions on Competitive Performance
Abstract : We analyze the effect of recessions on the stability of firms’ strategic positioning in an industry. Our main argument is that recessions temporarily alter the relative value of the competitive isolating mechanisms that sustain firms’ strategic positions, increasing the strength of supply-side isolating mechanisms and decreasing the strength of demand-side mechanisms. This allows for changes in firms’ positions – i.e. competitive leapfrogging. We also argue that firms can turn such temporary boosts into permanent advantages if they have enough strategic flexibility to embrace these changes. Empirical results from 18 industries in the US during the period 1982-2015 strongly support our reasoning.