Skip to main content
SpringerLink
Log in

The evolving patterns of competition after deregulation: the relevance of institutional and operational factors as determinants of rivalry

  • Regular Article
  • Published:
Journal of Evolutionary Economics Aims and scope Submit manuscript

Abstract

In this research, we apply an ecological model of competition to analyze the effect of deregulation on within industry competitive patterns. Particularly, we identify organizational forms within the population according to two different perspectives: an operational one and an institutional one. We argue that deregulation influences the relative importance of each of these dimensions at determining the set of firms that can be considered direct competitors, and the intensity with which they compete. Our findings show that the use of these two perspectives is of utmost importance to understand the evolution of competition in contexts where deregulation takes place. As our arguments predict, we show that, during the regulated period, competition was based on institutional definitions of organizational forms. However, after deregulation, competition progressively focused on operational definitions of organizational form. Our findings confirm the relevance of deregulation at shaping competitive interdependences within an industry.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Founding rate, in opposition to failure rate, is studied as a population-level outcome rather than a firm-level outcome, due to the fact that previous to the founding event there is no unit to observe and to which to attribute the outcome.

  2. Researchers on organizational identities define organizational forms as collective identities shared by a group of firms (Hsu and Hannan 2005; McKendrick et al. 2003; Pòlos et al. 2002). This conception is close to what we call institutionally defined organizational forms. To distinguish between institutional and technical restrictions on configurations of activities, structures and goals, we will distinguish between institutionally and operationally defined organizational forms.

  3. We assume that there is no perfect convergence among operationally and institutionally defined organizational forms. If both definitions converge, identities are not weakened after deregulation, as technical and institutional requirements would perfectly overlap and firms would have no incentive to vary their configuration of activities. However, a traditional assumption held by institutional theorists is that legitimated rules and activities tend to be incompatible with efficient and effective task performance (Meyer and Rowan 1977; Oliver 1992; Tolbert and Zucker 1983). Therefore, our assumption that institutionally defined and operationally defined organizational forms do not perfectly overlap is consistent with received theory.

  4. The sector also includes a third type of agent: credit unions. Their activity is very specific and marginal. They are oriented to cooperative retail banking in rural areas and the provision of financial services to specific collectivities and professions. For instance, in 2009 only four percent of aggregated assets in the sector corresponded to credits unions. We exclude these firms from our analysis because information on them is only available from 1991, which would restrict our observation period.

  5. Previously, there were a few organizations that carried out private banking activities and that may be labelled commercial banks. Some of them were still operative in 2009, the end of our observation window, such as Banco Etcheverria (founded in 1717) or Banco Pastor (founded in 1776).

  6. Spain is divided into 50 provinces. In 2009, each province included on average 931,874 inhabitants.

  7. As explained below, we include a control variable for the density of rivals that share both operational and institutional form. It is labelled institutional and operational density overlap.

  8. We also tried an alternative measure of localized competition for both institutionally and operationally defined organizational forms in which only rivals of the same organizational form are taken into account (i.e., firms of different organizational forms are weighted 0). The results remain qualitatively unchanged.

  9. In a few cases, firms close to the threshold are classified in different categories depending on whether the criterion is based on total loans, total deposits or total assets.

  10. Some firms changed their geographical scope during the observation window (e.g, entry into new markets). Such firms may experience a sudden variation in the density of rivals faced, altering the stability of our estimations. Accordingly, we performed robustness analyses (not shown here) in which we included additional controls. Specifically, we included a count of the markets in which a firm operates, a dummy variable that identifies firms that varied their geographical scope in a given year, and a dummy variable that identifies firms that varied their geographical scope in the previous year. The results remain substantively unchanged. We are grateful to an anonymous reviewer for this suggestion.

References

  • Aldrich HE, Fiol C M (1994) Fools rush in ? the institutional context of industry creation. Acad Manag Rev 19(4):645–670

    Google Scholar 

  • Aldrich H, Ruef M (2006) Organizations evolving. Sage, London

    Google Scholar 

  • Anderson P, Tushman ML (1990) Technological discontinuities and dominant designs: a cyclical model of technical change. Adm Sci Q 35:604–633

    Article  Google Scholar 

  • Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev Econ Stud 58:277–297

    Article  Google Scholar 

  • Arellano M, Bover O (1995) Another look at the instrumental-variable estimation of error components models. J Econom 68:29–52

    Article  Google Scholar 

  • Ashforth BE, Gibbs B W (1990) The double-edge of organizational legitimation. Organ Sci 1(2):177–194

    Article  Google Scholar 

  • Barnett WP (1997) The dynamics of competitive intensity. Adm Sci Quarterly 42(1):128–160 ,

    Article  Google Scholar 

  • Barnett WP, Carroll GR (1987) Competition and commensalism among early telephone companies. Admin Sci Q 30:400–21

    Article  Google Scholar 

  • Barnett WP, Carroll GR (1993) How institutional constraints affected the organization of early U.S. telephony. J Law Econ Organ 9(1):98–126

    Google Scholar 

  • Barnett WP, Greve HR, Park DY (1994) An evolutionary model of organizational performance. Strateg Manag J 15(Special Issue):11–28

    Article  Google Scholar 

  • Baron NJ (2004) Employing identities in organizational ecology. Ind Corp Chang 13(1):3–32

    Article  Google Scholar 

  • Barron DN, West E, Hannan MT (1994) A time to growth and a time to die. Growth and mortality of credit unions in New York City, 1914–1990. Am J Sociol 100(2):381–421

    Article  Google Scholar 

  • Barreto I, Baden-Fuller C (2006) To conform or to perform? Mimetic behavior, legitimacy-based groups and performance consequences. J Manag Stud 43(7):1559–1581

    Article  Google Scholar 

  • Baum JAC, Mezias SJ (1992) Localized competition and organizational failure in the manhattan hotel industry, 1898–1990. Adm Sci Q 37(4):580–604

    Article  Google Scholar 

  • Baum JA, Oliver C (1996) Toward an institutional ecology of organizational founding. Acad Manag J 39(5):1378–1427

    Article  Google Scholar 

  • Baum JAC, Singh JV (1994a) Organizational niches and the dynamics of organizational mortality. Am J Sociol 100(2):346–380

    Article  Google Scholar 

  • Baum JAC, Singh JV (1994b) Organizational niches and the dynamics of organizational founding. Organ Sci 5(4):483–501

    Article  Google Scholar 

  • Berger AN, Kashyap AK, Scalise JM (1995) The transformation of the U.S. banking industry: what a long, strange trip it’s been. Brook Pap Econ Act 55–218

  • Berger A N, Klapper LF, Udell GF (2001) The ability of banks to lend to informationally opaque small businesses. J Bank Financ 25:2127–2167

    Article  Google Scholar 

  • Berger A N, Miller N H, Petersen M A, Rajan R G, Stein J C (2005) Does function follow organizational form? Evidence from the lending practices of large and small banks. J Financ Econ 76:237–269

    Article  Google Scholar 

  • Bernad C, Fuentelsaz L, Gómez J (2010) The effect of mergers and acquisitions on productivity: an empirical application to Spanish banking. Omega 38(5):283–294

    Article  Google Scholar 

  • Bitektine A (2011) Towards a theory of social judgment of organizations: the case of legitimacy, reputation, and status. Acad Manag Rev 36(1):151–179

    Article  Google Scholar 

  • Blundell R W, Bond S R (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econom 87:115–143

    Article  Google Scholar 

  • Boone C, Carroll GR, van Witteloojstuijn A (2004) Size, differentiation and the performance of dutch daily newspapers. Ind Corp Chang 13(1):117–148

    Article  Google Scholar 

  • Brickley J A, Linck J S, Smith C W (2003) Boundaries of the firm: evidence from the banking industry. J Financ Econ 70:351–383

    Article  Google Scholar 

  • Carbó S, del Paso R, Fernández F (2003) Medición de la Competencia en Mercados bancarios Regionales. Rev Econ Apl 32(11):5–33

    Google Scholar 

  • Carroll G R, Hannan M T (1989) Density dependence in the evolution of populations of newspaper organizations. Am Sociol Rev 54(4):524–541

    Article  Google Scholar 

  • Chen MJ (1996) Competitor analysis and interfirm rivalry: toward a theoretical integration. Acad Manag Rev 21(1):100–134

    Google Scholar 

  • Cohen J, Cohen P, West S G, Aiken L S (2003) Applied multiple regression / correlation analysis for the behavioural sciences. (3rd. Ed.) Erlbaum, Mahwah

    Google Scholar 

  • Cole R A, Wolken J D (1995) Financial services used by small businesses: evidence from the 1993 national survey of small business finances. Fed Reserv Bull 81:629–667

    Google Scholar 

  • Cole RA, Goldberg LG, White LJ (2004) Cookie-cutter vs. character: the microstructure of small business lending by large and small banks. J Financ Quant Anal 39:227–251

    Article  Google Scholar 

  • D’Aunno T, Succi M, Alexander J A (2000) The role of institutional and market forces in divergent organizational change. Adm Sci Q 45:679–703

    Article  Google Scholar 

  • Delgado J, Salas V, Saurina J (2007) Joint size and ownership specialization in bank lending. J Bank Financ 31:3563–3583

    Article  Google Scholar 

  • Delmas M A, Montes-Sancho M J (2010) Voluntary agreements to improve environmental quality: Symbolic and substantive cooperation. Strateg Manag J 31:575–601

    Google Scholar 

  • DiMaggio P J, Powell W W (1983) The iron cage revisited. Institutional isomorphism and collective rationality in organizational fields. Am Sociol Rev 48(2):147–160

    Article  Google Scholar 

  • Dobrev S B (2007) Competing in the looking glass market.: imitation, resources and crowding. Strateg Manag J 28(13):1267–1289

    Article  Google Scholar 

  • Dolata U (2009) Technological innovations and sectoral change: transformative capacity, adaptability, patterns of change: an analytical framework. Res Pol 38(6):1066–1076

    Article  Google Scholar 

  • Espitia M, Polo Y, Salas V (1991) Grupos estratégicos y resultados en el sector bancario español. Información Comercial Española 690:189–212

    Google Scholar 

  • Fuentelsaz L, Gómez J, Palomas S (2012) Production technologies and financial performance: the effect of uneven diffusion among competitors. Res Policy 41(2):401–413

    Article  Google Scholar 

  • Freixas X (1996) Los límites de la competencia en la banca española. Fundación BBV, Bilbao

    Google Scholar 

  • Hannan T H (1991) Bank commercial loan markets and the role of market structure: evidence from the surveys of commercial lending. J Bank Financ 15:133–149

    Article  Google Scholar 

  • Hannan M T (1997) Inertia, density and the structure of organizational populations. Entries in European automobile industries, 1886–1981. Organ Stud 18(2):193–228

    Article  Google Scholar 

  • Hannan MT (2010) Partiality of memberships in categories and audiences. Ann Rev Sociol 36:159–181

    Article  Google Scholar 

  • Hannan M T, Carroll G R (1992) Dynamics of organizational populations. Oxford Univiverisity Press, New York

    Google Scholar 

  • Hannan M T, Freeman J (1977) The population ecology of organizations. Am J Sociol 82(5):929–964

    Article  Google Scholar 

  • Hannan M T, Freeman J (1987) The ecology of organizational founding: american labor unions, 1836–1985. Am J Sociol 92:910–43

    Article  Google Scholar 

  • Hannan MT, Freeman J (1989) Organizational ecology. Harvard University Press, Cambridge

    Google Scholar 

  • Hannan M T, Carroll G R, Dobrev S D, Han J (1998) Organizational mortality in european and american automobile industries. Part I: revisiting the effects of age and size. Eur Sociol Rev 14(4):279–302

    Article  Google Scholar 

  • Hannan M T, Pòlos L, Carroll G R (2007) Logics of organization theory: audiences, codes, and ecologies. Princeton University Press, Princeton

    Google Scholar 

  • Haveman H A (1992) Between a rock and a hard place: organizational change and performance under conditions of fundamental environmental transformation. Adm Sci Q 37(1):48–75

    Article  Google Scholar 

  • Haveman HA (1993) Organizational size and change. diversification in the savings and loan industry after deregulation. Adm Sci Q 38(1):20–50

    Article  Google Scholar 

  • Haveman H A, Rao H, Paruchuri S (2007) The winds of change: the progressive movement in the bureaucratization of thrift. Am Sociol Rev 72:117–142

    Article  Google Scholar 

  • Haynes G W, Ou C, Berney R (1999) Small business borrowing from large and small banks. In: Blanton J L, Williams A, Rhine S L W (eds) Business Access to Capital and Credit. Federal Reserve System Research Conference, pp. 287–327

  • Hsu G, Hannan M T (2005) Identities, genres and organizational forms. Organ Sci 16(5):474–490

    Article  Google Scholar 

  • Kraatz M S, Zajac E J (1996) Exploring the limits of new institutionalism: the causes and consequences of illegitimate organizational change. Am Sociol Rev 61:812–836

    Article  Google Scholar 

  • Kuilman J., Li JT (2006) The organizers’ ecology: an empirical study of foreign banks in Shanghai. Organ Sci 17:385–401

    Article  Google Scholar 

  • Kwast M L, Starr-McCluer M, Wolken J D (1997) Market definition and the analysis of antitrust in banking. Antitrust Bull 42:973–95

    Google Scholar 

  • Lomi A (2000) Density dependence and spatial duality in organizational founding rates of danish commercial banks 1976–1989. Organ Stud 21:433–461

    Article  Google Scholar 

  • Madsen T. L., Walker G. (2007) Incumbent and entrant rivalry in a deregulated industry. Organ Sci 18(4):667–687

    Article  Google Scholar 

  • Más-Ruiz FJ, Ruiz-Moreno F (2011) Rivalry within strategic groups and consequences for performance: the firm-size effects. Strateg Manag J

  • Más-Ruiz F J, Nicolau-Gonzálbez J L, Ruiz-Moreno F (2005) Asymmetric rivalry between strategic groups: response, speed of response and ex-ante vs. ex-post competitive interaction in the spanish bank deposit market. Strateg Manag J 26:713–745

    Article  Google Scholar 

  • McKelvey B (1982) Organizational systematics-taxonomy, evolution, classification. University of California Press, Berkeley

    Google Scholar 

  • McKendrick D G, Carroll G R (2001) On the genesis of organizational forms. Evidence from the market for disk arrays. Organ Sci 12(6):661–682

    Article  Google Scholar 

  • McKendrick D G, Jaffee J, Carroll G R, Khessina O M (2003) In the mud? Disk array producers as a (Possibly) emergent organizational form. Adm Sci Q 48(1):60–93

    Article  Google Scholar 

  • Meyer J W, Rowan B (1977) Institutionalized organizations: formal structure as myth and ceremony. Am J Sociol 83:340–363

    Article  Google Scholar 

  • Nickell SJ (1981) Biases in dynamic models with fixed effects. Econometrica 49:1417–1426

    Article  Google Scholar 

  • Nickerson J A, Silverman B S (2003) Why firms want to organize efficiently and what keeps them from doing so: inappropriate governance, performance, and adaptation in a deregulated industry. Adm Sci Q 48(4):433–465

    Article  Google Scholar 

  • Oliver C (1992) The antecedents of Deinstitutionalization. Organ Stud 13(4):563–588

    Article  Google Scholar 

  • Pòlos L, Hannan M T, Carroll G R (2002) Foundations of a theory of social forms. Ind Corp Chang 11(1):85–115

    Article  Google Scholar 

  • Radecki LJ (1998) The expanding geographic reach of retail banking markets. Fed Reserv Bank New York Econ Policy Rev 4:15–34

    Google Scholar 

  • Ranger-Moore J, Breckenridge R S, Jones D L (1995) Patterns of growth and size- localized competition in the new york state life insurance industry: 1860–1995. Social Forces 73(4):1027–1049

    Article  Google Scholar 

  • Rennings K, Markewitz P, Vogele S (2010) How clean is clean? Incremental versus radical technological change in coal-fired power plants. J Evol Econ

  • Rhoades S A (1992) Evidence on the size of banking markets from mortgage loan rates in twenty cities. Board of Governors of the Federal Reserve System Staff Study N ∘162

  • Romanelli E (1991) The evolution of new organizational forms. Annu Rev Sociol 17:79–103

    Article  Google Scholar 

  • Roodman D (2006) How to Do Xtabond2: an Introduction to “Difference” and “System” Gmm in Stata. Working paper, Institute for International Economics - Center for Global Development

  • Ruef M (2000) The emergence of organizational forms: a community ecology approach. Am J Sociol 106(4):658–714

    Article  Google Scholar 

  • Scott W, Meyer J (1983) The organization of societal sectors. In: Meyer J, Scott R (eds) Organizational Environments: Ritual and Rationality. Beverly Hills, California

    Google Scholar 

  • Scott W, Meyer J (1991) The organization of societal sectors: propositions and early evidence. The new institutionalism in organizational analysis. Walter W Powell y Paul J DiMaggio

  • Sharpe S A (1997) The effect of consumer switching costs on prices. A theory and its application to the bank deposit market. Rev Ind Organ 12:79–94

    Article  Google Scholar 

  • Silverman B S, Nickerson J A, Freeman J (1997) Profitability, transactional alignment, and organizational mortality in the U.S. trucking industry. Strateg Manag J 18(Special Issue):31–32

    Article  Google Scholar 

  • Simons K, Stavins J (1998)

  • Sorensen J B (2004) Recruitment-based competition within industries: a community ecology. Ind Corp Chang 13(1):149–170

    Article  Google Scholar 

  • Suchman M C (1995) Managing legitimacy: strategic and institutional approaches. Acad Manag Rev 20(4):571–610

    Google Scholar 

  • Tolbert P S, Zucker L G (1983) Institutional sources of change in the formal structure of organizations. The diffusion of civil service reform: 1880–1935. Adm Sci Q 28(1):22–39

    Article  Google Scholar 

  • Tushman M L, Anderson P (1986) Technological discontinuities and organizational environments. Adm Sci Q 31:439–465

    Article  Google Scholar 

  • Walker G., Madsen T. L., Carini G. (2002) How does institutional change affect heterogeneity among firms? Strateg Manag J 23(2):89–104

    Article  Google Scholar 

  • Wang X, Butler B, Ren Y (2012) The impact of membership overlap on growth: an ecological competition view of online groups. Organ Sci:1–18

  • Windmeijer F (2005) A finite sample correction for the variance of linear efficient two-step GMM estimators. J Econ 126:25–51

    Article  Google Scholar 

  • Wooldridge J M (2002) Econometric analysis of cross section and panel data. MIT Press, Cambridge

    Google Scholar 

  • Zuckerman E (1999) The categorical imperative: securities analysts and the illegitimacy discount. Am J Sociol 104:1398–1438

    Article  Google Scholar 

Download references

Acknowledgments

We are grateful to Lucio Fuentelsaz and Juan Pablo Maícas for helpful comments. This paper was previously presented at the XXII ACEDE Conference, at the 31st Annual International Conference of the Strategic Management Society and the 12th Conference of the European Academy of Management. We are grateful to their audiences for helpful comments.

Author information

Authors and Affiliations

  1. Generés Research Group, Dpto. de Economía y Empresa, Universidad de la Rioja, Edificio Quintiliano, 26004, Logroño, Spain

    Jaime Gómez

  2. Dpto. Economía de la Empresa, Universidad San Pablo CEU/Universidad de Zaragoza, Julian Romea XXIII, 28003, Madrid, Spain

    Raquel Orcos

  3. Generés Research Group, Dpto. Dirección y Organización de Empresas, Universidad de Zaragoza, María de Luna 3, 50018, Zaragoza, Spain

    Sergio Palomas

Authors
  1. Jaime Gómez
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Raquel Orcos
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Sergio Palomas
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Raquel Orcos.

Additional information

Funding

This research was supported by the Spanish Ministry of Science and Technology (project ECO2011-22947), the Diputación General de Aragón (S09/PM062) and the Universidad de La Rioja (EGI11/29).

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Gómez, J., Orcos, R. & Palomas, S. The evolving patterns of competition after deregulation: the relevance of institutional and operational factors as determinants of rivalry. J Evol Econ 24, 905–933 (2014). https://doi.org/10.1007/s00191-014-0355-7

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00191-014-0355-7

Keywords

Search

Navigation