Deterrence, Reputations and Competitive Cognition

Deterrence, Reputations and Competitive Cognition

By David Bruce Montgomery, Bruce Clark
1994Working Paper No. 1261

This study examines an aspect of competitive interactions that has attracted increasing research attention: the relationship between deterrence and competitive reputations. We build a conceptual model of the antecedents and consequences of a firm's reputation for being a credible defender of its markets. Theory and limited empirical evidence suggests afirm with this reputation should deter competitive attacks against it. We explore how a manager's competitive cognition about her opponents' (1) patterns of activity in the marketplace and (2) previous success can lead her to perceive a competitor as a credible defender. We test the framework using MBA students in a quasi-field setting, the Markstrat2 simulation game. The results of the study suggest that reputation deters attack only when the potential attacker considers the target firm a minor competitor. Managers consider defenders that have previously been successful as credible defenders of their markets. They also weigh consistency of activity relative to market average in making inferences about credibility. The study indicates that the deterrence-reputation link is more complex than previous theory and evidence might imply, and suggest considerable promise for a psychological approach to examining competitive interactions.