The Red Queen in Organizational Creation and Development

We offer a asynthesis of organization learning theory and organizational ecology. Organizations learn in response to competition. The learning then intensifies the competition generated by each organization against its rivals, motivating rivals to learn, thereby becoming stronger competitors. In turn, this response increases the competitive pressure faced by each organization, again triggering a learning response. This self-exciting dynamic, sometimes referred to as the “Red Queen” in general evolutionary theory, is modeled to explain organizational founding and growth rates among the thousands of retail banks that have operated in Illionios at any time from 1990-1993. We find strong evidence that Red Queen evolution led some organizations to grow quickly and to place strong competitive pressures on rivals. Red Queen evolution also helped establish barriers to entry. Nevertheless, this same evolutionary process appears to make organizations more susceptible to “competency traps,” ultimately slowing their growth rates. We also find evidence that organizations confronted by a widely varying distribution of competitors grow more slowly and are more likelty to face new entrants. Overall, the results suggest that observed size distributions of firms emerge from ecologies of learning organizations. More generally, we discuss the use of ecological theory and models in order to study the empirical consequences of organizational learning.