Theoretical Foundation for the Study of Competition Networks and Their Performance Implications

Laying the foundation for competition network theory, this study underscores the differences between competitive and cooperative relations and explains how the network of competitive relations in which a firm is situated can affect its performance. The study extends strategic management research on competition by shifting focus from the industry or firm to the network level of analysis, thus offering new insights into the implications of competition. Specifically, it suggests that firm performance declines with the intensity of the firm’s competitive relations, yet mutual forbearance that emerges due to multimarket contact can mitigate this effect. In addition, firm performance is negatively related to degree centrality of the firm in its competition network. In turn, the centrality of the firm’s competitors in their competition networks can enhance the firm’s performance, although an increasing proportion of shared third-party competitive relations of the firm and its competitors in their competition networks mitigate this effect. Hence, besides industry structure and the firm’s resource configuration, the firm’s position in its competition network and the nature of its competitive relations can shape its performance. This study advances competition research by introducing a network perspective that extends the literature on competitive dynamics while informing empirical research on competition networks. Directions for future research on competition networks are discussed.