Multimarket Contact and Rivalry over Knowledge-based Resources

Research summary: Research shows that multimarket contact (MMC) reduces rivalry involving downstream activities. Yet, studies showing that MMC can increase the threat of imitation suggest a need to better understand how MMC affects upstream rivalry over knowledge-based resources. In this study, we argue that MMC increases rivalry over knowledge-based resources since the deterrent threat of retaliation that typically leads to mutual forbearance in downstream activities will not be sufficient to restrain firms from protecting their knowledge from imitation in upstream activities. In support of these arguments we find that MMC increases the likelihood that a firm initiates patent litigation against a rival. This study suggests the relationship between MMC and rivalry may depend on the competitive domain and the type of resources over which firms are competing.Managerial Summary: How does market overlap or MMC affect rivalry between two competitors? Prior studies have largely found that an increase in market overlap decreases rivalry in less knowledge-intensive context because of the deterrent threat of retaliation. However, in this paper, we argue that an increase in market overlap may not reduce rivalry in more knowledge-intensive context because of heterogeneity in capabilities to protect knowledge. We find that a firm is more likely to initiate patent litigation against a rival as market overlap increases. Our findings suggest that the incentive to protect value across multiple product markets may surpass the motivation to cooperate with rivals and that managers should have a more nuanced view of how market overlap with competitors affects rivalry in more knowledge-intensive contexts. Copyright (c) 2017 John Wiley & Sons, Ltd.