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The objective of the present paper is to identify the determinants of the form of collaboration initiated between an upstream innovator and a downstream producer in order to incorporate a new input and commercialize an innovation consisting of a quality enhanced final product, with an empirical application to the genetically modified (GM) plant industry. The choice of upstream firm between license, joint venture, merger, or a subsidiary is modeled as a function of three parameters: degree of quality improvement engendered by the new input, the market share of the downstream producer, and the capability of the downstream producer to incorporate the new input and commercialize it successfully.

A theoretical model was constructed to investigate the conditions that a large retailer must satisfy to increase the quality of the retailer-owned brands towards a greater number of groceries. The key result shows that the restraint given by a vertical integration scheme (producer-distributor) is relaxed for a higher quality-production cost ratio under the assumption of modelling with endogenous quality. Another finding is that the national brand´s production is not altered, which is explained by the fact that this brand is demanded by consumers with high willingness to pay for it. However, the wholesale price decreases and hence the manufacturer’s profit always falls as the quality of own brands rises. This is consistent with the argument that the retailer improves its negotiation capacity with the private manufacturer when it sells an own brand that is a close substitute for the manufacturer’s label, which always forces the wholesale price of the branded product down. Se investigan las condiciones que un gran minorista debe satisfacer, a fin de aumentar la calidad de sus productos-marcas propias, hacia un mayor número de abarrotes. El resultado principal del análisis muestra que la restricción en un esquema productor-distribuidor es relajada por una mayor relación calidad-costos de producción, bajo el supuesto de que la calidad de la marca propia es endogenizada. Otro hallazgo es que la producción total del manufacturero se mantiene, lo que se explica en que esta marca es demandada por consumidores con alta voluntad de pagar. Sin embargo, el precio del bien baja, por lo que la utilidad del manufacturero decrece, cuando la calidad de la marca propia se incrementa. Esto es consistente con el argumento de que el gran minorista mejora su capacidad de negociación, cuando vende un producto sustituto similar a la etiqueta del manufacturero, lo que impacta negativamente en el precio de este último producto.

Dynamic capabilities refer to an organization’s ability to integrate, build, and reconfigure internal and external competencies to address a rapidly developing environment. In his highly influential 2014 JIBS paper, David Teece provides a holistic explanation of how firms can: achieve sustained competitive advantage, adjust and preserve superior performance, and adapt to changing environments. The article, along with Teece’s related contributions, is remarkable in that it has led us to rethink and reframe our conventional understanding of markets, strategy, competitive advantage, and the firm. In this commentary, we reflect on the transformative contributions of the article. We argue that the dynamic capabilities framework provides a foundation for theorizing and developing a coherent logic that guides theory development.

Absorptive capacity (ACAP) refers to a firm's ability to acquire, assimilate, transform, and exploit new knowledge. Research has yet to acknowledge the possibility of limits to the financial returns of this important strategic construct. This study suggests an inverted-U shaped relationship between ACAP and financial performance. Based on data from 285 technology-based small and medium enterprises, we observe gains within three prospective, secondary measures of growth to diminish beyond lower levels of ACAP, even turning negative and becoming harmful beyond intermediate levels. We find that entrepreneurial orientation (EO) moderates the ACAP-performance relationship, enhancing financial gains at lower levels of ACAP and mitigating the decline in financial performance at higher levels of ACAP. Further, with higher EO, higher ACAP can be achieved before financial returns diminish.

Using new data on entry plans into the American casino industry, I find that incumbent firms invest in physical capacity when threatened with a nearby entry plan, and these strategic investments deter eventual entry. Consistent with an entry-deterrence motive, incumbents respond to the threat of entry when entry is uncertain, but not when entry is assured. The average capacity expansion of 2,300 square feet is associated with a 6.8-percentage-point greater likelihood that the entry plan fails. These findings show that investments in deterrence are viable, especially when new entrants face other significant barriers to entry. Data and the online appendix are available at https://doi.org/10.1287/mnsc.2017.2730 . This paper was accepted by Bruno Cassiman, business strategy.

Recent research shows prices are insensitive to local demand conditions because national chains charge geographically uniform prices. We examine the price response to local cost shocks, including 68 excise tax changes, 76 sales tax changes, and other geographically based cost differences, using data on 35,151 retail stores in 96 multi-state chains. We find local cost shocks are passed through to local prices, with no spillovers to unaffected stores in otherwise affected chains, and at similar rates for national and local chains. Firms adjust local prices according to local cost changes, suggesting retailers respond asymmetrically to local cost and demand shocks.

Bilevel optimization problems are very challenging optimization models arising in many important practical contexts, including pricing mechanisms in the energy sector, airline and telecommunication industry, transportation networks, critical infrastructure defense, and machine learning. In this paper, we consider bilevel programs with continuous and discrete variables at both levels, with linear objectives and constraints (continuous upper level variables, if any, must not appear in the lower level problem). We propose a general-purpose branch-and-cut exact solution method based on several new classes of valid inequalities, which also exploits a very effective bilevel-specific preprocessing procedure. An extensive computational study is presented to evaluate the performance of various solution methods on a common testbed of more than 800 instances from the literature and 60 randomly generated instances. Our new algorithm consistently outperforms (often by a large margin) alternative state-of-the-art methods from the literature, including methods exploiting problem-specific information for special instance classes. In particular, it solves to optimality more than 300 previously unsolved instances from the literature. To foster research on this challenging topic, our solver is made publicly available online. The online appendix is available at https://doi.org/10.1287/opre.2017.1650 .

What makes a decision strategic? When is strategy most important? This paper formally studies these questions, starting from a (functional) definition of strategy as the smallest set of choices to optimally guide (or force) other choices. The paper shows that this definition coincides with the equilibrium outcome of a “strategy formulation game,” in which such strategy endogenously creates a hierarchy among decisions. With respect to what makes a decision strategic and what makes strategy valuable, the paper considers the effect of commitment, reliability, and irreversibility of a decision; the presence of uncertainty (and the type of uncertainty); the number and strength of its interactions and the centrality of a decision; its level and importance; the development of capabilities; and competition. This paper was accepted by Bruno Cassiman, business strategy .

Despite a growing interest in the phenomenon of open innovation (OI), empirical evidence documenting the link between new product development capabilities, OI practices, and new product innovativeness is scarce. Eminent scholars have called for large-scale studies that systematically investigate the OI paradigm. Drawing on the knowledge-based view of the firm, new product development, and NPD capabilities literature streams, we conceptualize a framework in which OI practices are disentangled according to the stage of the new product development process in which they occur (development stage or commercialization stage). We identify two major types of OI practices: development-centric OI (which occurs in the development stage) and commercialization-centric OI (which occurs in the commercialization stage). Specific types of NPD capabilities—R&D, market information management, and launch—are expected to both influence the extent to which each OI practice is implemented and moderate the effect of each OI practice on product portfolio innovativeness and firm performance. The empirical analysis combines primary data from a survey of 239 firms with secondary data on innovation and financial outcomes. Our results support our hypotheses and indicate a need to differentiate among the different kinds of OI practices while elaborating on the complex role played by NPD capabilities in influencing OI practices.

This paper addresses primarily two questions. First, when (and why) should a company’s strategy be developed by its CEO versus by some outside analyst or other insider? Second, how does strategy interact with vision (in the sense of a strong belief about the right course of action)? The paper studies these questions using a functional definition of strategy as “the smallest set of choices to optimally guide other choices.” Among other things, the paper shows that strategy formulation by the CEO leads to both better strategy and better execution, and that a strategist’s vision may improve execution. In the process, the paper also identifies criteria that make a decision strategic and derives explanations why strategies often reflect the background of the strategist. This paper was accepted by Bruno Cassiman, business strategy.