Competitive Dynamics in the Global Insurance Industry

Ever since the early days of research into the functioning of economic markets (Smith, 1776), there has been a vibrant academic debate on the role of competition. While this debate has traditionally been led by economists and centered on the welfare effects of competition (Hayek, 1968; Schumpeter, 1934, 1943), strategic management scholars turned the focus of the debate toward individual firms, and their competitive strategies and advantages (Porter, 1980, 1985). Even though they initially adopted economic ideas, management scholars soon developed their own perspectives on interfirm rivalry that were better suited to explain performance differences between firms (Baum & Korn, 1999; Chen, 1996; Hunt, 1972). These theories and related work became known as “competitive dynamics research” within the strategic management discipline (Ketchen, Snow, & Hoover, 2004).

Clearly, the term competition triggers different associations among theorists, policymakers and businessmen. While theorists and policymakers oftentimes relate competition to broad industry states and market structures, businessmen tend to conceive the concept as a rivalry between competing firms. Similar to these different stakeholder perceptions, there is also no unified notion of the concept within the social sciences. Instead, during the more than 200 years of academic discourse in economics and, more recently, in management research, various contrasting perspectives on competition have been promoted, leaving us with a somewhat ambiguous notion of the concept (McNulty, 1968).

Since Hunt (1972) initially grouped strategically similar firms within the appliance industry into sets of direct competitors and dubbed these clusters “strategic groups”, numerous strategy scholars have adopted the strategic group concept. While early studies mostly applied strategic groups as a middle-ground between the industry and the firm for predicting profitability differences between firms, more recent studies turned toward investigating the internal structure of strategic groups (Cool & Schendel, 1987; McNamara et al., 2003), the groups’ roles in guiding managerial decision making and the competitive behavior of firms (Baum & Lant, 1995; Bresser, Dunbar, & Jithendranathan, 1994; Fiegenbaum & Thomas, 1995; Porac & Thomas, 1994), as well as the temporal dynamics of strategic groups (DeSarbo, Grewal, & Wang, 2009; Fiegenbaum & Thomas, 1993; Lee, Lee, & Rho, 2002; Mascarenhas, 1989; Oster, 1982).

Since its inception in the mid 1980s, competitive dynamics research has been concerned with the causes and consequences of interfirm rivalry (Bettis & Weeks, 1987; MacMillan et al., 1985; Smith et al., 2001b). In their analyses, competitive dynamics scholars have adopted the idea that interfirm rivalry is reflected in the ongoing interchange of competitive actions between individual competitors (Chen & MacMillan, 1992; Ferrier, 2001) – an idea rooted in Schumpeterian and Austrian economics (Schumpeter, 1934; Young et al., 1996). This notion of rivalry had an important impact on the empirical approach of competitive dynamics research in that it geared the scholarly focus toward the real competitive actions exchanged between pairs (dyads) of firms (Baum & Korn, 1999; Chen & MacMillan, 1992; Chen et al., 1992; Chen, Su, & Tsai, 2007)

Even though acquisitions have generally taken a much more prominent place in strategic management research, divestitures have attracted more and more research attention recently (Brauer, 2006; Johnson, 1996). The term divestiture stands for a group of vehicles through which a firm adjusts its ownership structure and reduces its business portfolio scope. The most prominent vehicles which are commonly captured under the umbrella term divestiture are sell-offs, spin-offs or equity carveouts. Over the past few decades, scholars have contributed considerably to our knowledge of the antecedents of divestitures and offered further insights into divestiture performance (Berger & Ofek, 1999; Bergh & Lim, 2008; Haynes, Thompson, & Wright, 2002, 2003; Hite, Owers, & Rogers, 1987; John & Ofek, 1995; Lang, Poulsen, & Stulz, 1995; Montgomery, Thomas, & Kamath, 1984). But still, many ambiguities and gaps remain in our understanding of divestitures.

With this dissertation, we focused on interfirm rivalry within the competitive dynamics branch of strategic management research. The scope of our research was set by the desire to mitigate two general issues of competitive dynamics research and its sub-fields (Ketchen et al., 2004). These issues being first, a prevailing paucity of dynamic theories and longitudinal analyses (Daems & Thomas, 1994; Miller & Chen, 1994), and second, narrow theoretical roots (Smith et al., 2001b). With this overall intention in mind, we reviewed extant literature on competition and rivalry and derived a research agenda that advances recent developments within competitive dynamics research (chapter 2).