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Theory and methods from organizational ecology and the strategy field are combined to predict the dynamic consequences of strategic deterrence. A model is developed to investigate which strategies will prevail through an industry ‘shake out’ when some firms compete while others forbear from competing with their ‘multipoint’ rivals—those faced in more than one markes or market segment. Theory predicts that multipoint contact affects competition within but not between strategic groups, and it is speculated that whether multipoint contact deters competition depends on strategic objectives. The predictions are supported by estimates of market exit rates in the customer premises equipment and service (CPES) sector of the deregulated American telephone industry. The results show that, due to forbearance, weak competitors can out-survive strong competitors. Evidence also is found that strategic groups not protected by mobility barriers face strong competition from other strategic groups. Implications for the study of strategic evolution are discussed.
William P. Barnett (Fri,) studied this question.