1. Improved conceptual clarity and articulation of theoretical contributions

Transcription

1 June 25, 2005 Amy Hillman Associate Editor, Academy of Management Journal Arizona State University Dear Amy: Thank you very much for offering us the opportunity to revise and resubmit our manuscript (# ) entitled, "Competitive tension: The awareness-motivation-capability perspective." We noted that your letter called for a substantial revision to overcome various issues that reviewers raised. You have motivated us to work extremely hard in revising the paper. As you probably noticed, we added one more co-author to work on this revision. We thoroughly revised the paper from start to finish to emphasize the conceptual development of competitive tension, the role of the AMC perspective, and clarity with respect to our research design and methods. We also greatly expanded our data, constructed new variables, and performed new analyses to provide more convincing evidence for our hypotheses. In addition, we were extremely careful and responsive in addressing each reviewer s concerns. Let us summarize the major changes in the paper in response to the important points raised in your letter. 1. Improved conceptual clarity and articulation of theoretical contributions a. Conceptual development of competitive tension We clarified the definition and conceptual foundation of the competitive tension concept in a newly added section (please see pages 6-8). As stated in the revised manuscript (please see page 3), competitive tension is defined as the strain between a focal firm and a given rival that precipitates the firm to take action against the rival. Consistent with competitive dynamics research, the concept of competitive tension targets the firm-dyad level and has direct behavioral implications; in line with cognitive competitive mapping research, it highlights the importance of perceptual views of rivalry. A central but unexamined construct in competitor analysis, competitive tension provides a conceptual link not only between these two research streams but also between the static analysis of competitors and the dynamic treatment of interfirm rivalry. We also justified why we focus on competitive tension rather than on similar ideas such as competitive intensity, threat, or pressure. In particular, based on reviewer 1 s suggestion, we related the term to the use of tension in other disciplines such as physics and psychology (please see pages 7-8 in the revised manuscript). Our new conceptualization of competitive tension incorporates both objective and perceptual considerations, even though the empirical focus of this research is on perceived competitive tension (given that perceived tension is a relatively unexplored concept compared to objective structural tension). 1

2 Furthermore, we drew on the social construction perspective to argue that perceived competitive tension is a socially constructed phenomenon that includes the considerations of both firm managers and industry stakeholders. We even expanded our data to include the perceptions of industry stakeholders such as consultants and travel agents. This allowed us to address many of the reviewers concerns (see our response to reviewer 1, #1, to reviewer 2, #1, 2, and 3, and to reviewer 3, framing issues and methodological issues, first point). b. The role of AMC and why these variables We highlighted the importance of the AMC perspective for competitor analysis (a static consideration of the relationship between firms) and interfirm rivalry (interplay between firms and the behavioral aspects of competition) in the revised manuscript. We agree with you and reviewers that AMC can comprise many variables. Thus, we included in our analysis several new variables that reviewers suggested. Among the new variables, prior competitive action (rival s attack volume) was considered the major motivation factor. (The data for this variable was laboriously and rigorously constructed.) Other new variables such as past performance and slack resources were used as controls rather than independent variables as these variables were at the firm level and our conceptual model was at the dyadic level. c. Positioning of the research question and the magnitude of contribution We clearly described the gap in the literature that we wanted to fill and highlighted the importance of the gap (please see pages 2-3 in the revised manuscript). We argue that even though research on cognitive competitive mapping (Reger & Huff, 1993) has provided a perceptual construction of competitor (Porac & Thomas, 1990) as well as strategic (Reger & Huff, 1993) and competitive groups (Porac, et. al., 1995), it tends to treat a firm s competitors as a homogeneous group, and has made almost no effort to examine the perception of tension between the firm and its competitors and the behavioral implications such perception entails. This gap is critical because how opponents view each other is necessary for predicting attack (Ferrier, 2001) and retaliation (Chen & MacMillan, 1992), among other forms of interfirm rivalry. We also articulated our contributions. In particular, we explained how our research bridges competitive dynamics and cognitive competitive mapping research by incorporating some of the best ideas from each research stream and moving beyond them. Our overall empirical findings that theoretically derived AMC objective indicators can be used to predict perceived tension between rivals, which in turn influences future observable market behaviors, offer a conceptual and empirical fusion of these two contrasting research streams. We also tried to resolve some of the limitations of each research stream (please see pages 5-6) and advanced the concept of competitive tension (please see pages 6-8). 2. Clarified data and methodology a. Empirical connections between independent and dependent variables In the previous version, market commonality was used as an independent variable because it was measured prior to our dependent variable. Given our specific interest in the perception of competitive tension, and to do appropriate justice to this important construct, we do not want to combine it with a non-perceptual measure of market commonality to form a big latent 2

3 construct. In this revision, we completely re-conceptualized our research model, clarified our specific interest in perceived competitive tension and highlighted its importance (its significant effect on competitive action remained even after we controlled for a significant non-perceptual structural tension measure). To capture fully the motivational component of the AMC perspective, we also replaced market commonality with rival s attack volume, as per reviewers and your comments, when predicting perceived competitive tension. This decision also resolved the multicollinearlity problem (given that market commonality was highly correlated with other antecedents) that we had in the previous version. b. Sample and methodology We clarified our sample and provided more information about the respondents in our survey (please see pages in the revised manuscript). We also justified why our data set is appropriate even though it is perhaps a little bit old (please see page 14 for our justification of focusing on the airline industry during the time period and our response to reviewer 2, # 6). In addition, we emphasized the advantages of using a roster format (that contains a list of all actors for respondents to rank) compared to a free recall format (that uses an open-end question) in our questionnaire design (please see a newly added footnote 3 in the revised manuscript and our response to reviewer 3, methodological issues, #2). c. Appropriateness of our analyses. We added a new section on Data Analyses in the revised manuscript (see pages 18-19). In this section, we provided our rationale for using specific analytical techniques in our research. We also performed several additional analyses using alternative techniques such as GLS random effects regression and fixed effects regression, and found that the patterns of results are the same as those reported in our paper. We explained why we cannot use structural equation modeling for our analysis in our response to reviewer 1 (#6). First, our dyadic level data violate a critical assumption of structural equation modeling on data independence (there is interdependence among our dyadic level observations). Second, structural equation modeling is ideal for analyzing constructs with multiple measurement items, but most of the constructs have a single indicator. Although we do not have multiple measurement items for each construct, we have multiple informants for this indicator, allowing us to validate this concept using multiple responses (from managers and industry stakeholders). Please see the ICC results of our perceived competitive tension measure in the methods section (page 16). Thank you very much for providing such clear and helpful directions. We have taken very seriously the admonition that the revision would be "high risk" and have progressively improved the paper through several iterations of comments from colleagues. We look forward to hearing from you concerning the revised manuscript. 3

4 COMPETITIVE TENSION: THE AWARENESS-MOTIVATION-CAPABILITY PERSPECTIVE (Manuscript # ) Executive Summary We thoroughly revised the paper, from start to finish, to emphasize the conceptual development of competitive tension, the role of the AMC perspective, and the rigor of our research design and methods. We also greatly expanded our data, constructed new variables, and performed new analyses to provide more convincing evidence for our hypotheses. Here is a summary of major changes in the paper in response to the editor and reviewers. 1. Conceptual development of competitive tension We added a new section on competitive tension (please see pages 6-8). We clarified the definition and conceptual foundation of this central construct in our research. We also justified why we focused on competitive tension rather than on similar ideas such as competitive intensity, threat, or pressure. In particular, we related the term to uses of tension in other disciplines such as physics and psychology (please see pages 7-8 in the revised manuscript). Indeed, the opening remark helps direct the focus and intention of this paper and clarify the phenomenon the paper sets out to investigate. Furthermore, we drew on the social construction perspective to argue that perceived competitive tension is a socially constructed phenomenon that includes the considerations of both firm managers and industry stakeholders. 2. The role of Awareness-Motivation-Capability (AMC) We highlighted the importance of the AMC perspective for competitor analysis (a static consideration of the relationship between firms) and interfirm rivalry (interplay between firms and the behavioral aspects of competition) in the revised manuscript (see pages 9-10 and 22). We believe that the AMC perspective is a natural outgrowth from findings in competitive dynamics research, and each of its components has been shown to be empirically significant in explaining the behavioral exchange of competitive moves (Smith, Ferrier, & Nodfor, 2001). Our paper extends this theoretical perspective and tests it empirically within the context of competitor analysis. Not only does the perspective have the potential to advance and integrate competitor analysis and interfirm rivalry research, it may also illuminate our understanding of interfirm actions and relationships in general. Moreover, it can provide an important bridge between micro and macro organizational literature, as attempted earlier by Dutton & Jackson (1987) and Chen &Miller (1994). 3. Theoretical contributions We further articulated our contributions in our paper. In particular, we explained how our research bridges competitive dynamics and cognitive competitive mapping research by incorporating some of the best ideas from each research stream and moving beyond them. We also tried to resolve some of the limitations in each research stream and advanced the concept of competitive tension (please see pages 6-8 in the revised manuscript). Moreover, 4

5 the paper also formalized the AMC perspective for competitor analysis and reinforced its link with the interfirm rivalry (Chen, 1996). Finally, our overall empirical findings that theoretically derived objective AMC indicators can be used to predict perceived tension between rivals, which in turn influences future observable market behaviors, should have broad theoretical implications for the strategy and competition literature. 4. New data and new variables We expanded our data to include the perceptions of industry stakeholders such as consultants and travel agents. To show how perceived competitive tension matters, we also collected market entry data to construct a new outcome variable attack (volume) on rival. The rigorous construction of these two variables, particularly the latter one, was indeed time consuming since we needed to look into individual routes from the sample 10,000 routes to extract the entry information. In addition, we included in our analysis several new variables that reviewers suggested. Among the new variables, prior competitive action (rival s attack volume) again, a painstaking task by itself was considered the major motivational factor. Other new variables, such as past performance and slack resources, were used as controls rather than as independent variables, because these variables are at the firm level and our conceptual model is at the dyadic level. 5. Clarification of sample and methodology We clarified our sample and provided more information about the respondents in our survey (please see pages in the revised manuscript). We also justified why our data set is appropriate even though it is a bit old (please see page 14 for our justification of focusing on the airline industry during the time period and our response to reviewer 2, # 6). In addition, we emphasized the advantages of using a roster format (that contains a list of all actors for respondents to rank) compared to a free recall format (that uses an open-end question) in our questionnaire design (please see a newly added footnote 3 in the revised manuscript and our response to reviewer 3, methodological issues, #2). 6. New analyses We employed several new analyses and added a new section on Data Analyses in the revised manuscript to describe our rationale for using specific analytical techniques in our research (please see pages 18-19). We also checked the robustness of our results using alternative analytical techniques such as GLS random effects regression and fixed effects regression, and found that the patterns of results are the same as those reported in our paper. We have carefully addressed each and every issue the editor and reviewers raised in our paper as well as in our responses. Benefiting from the extremely thorough and insightful reviews we received, our paper is now more compelling than the previous version in its originality and contribution to theory and research. 5

6 COMPETITIVE TENSION: THE AWARENESS-MOTIVATION-CAPABILITY PERSPECTIVE (Manuscript # ) Note to Reviewer 1 Thank you very much for your very thorough and insightful review on the previous version of our paper. We appreciate your encouraging comment on the salience of our competitive tension concept. In this revision, we capitalized on the awareness-motivation-capability perspective to address critical issues concerning the social construction of perceived competitive tension. We also expanded our model to include prior and future competitive actions, strengthened our theoretical arguments, performed new analyses, clarified our research design, and highlighted the conceptual contributions of our paper based on the many great ideas you suggested. We believe that our paper is more compelling and original in its contribution to theory and research than the previous version, owing to your thought-provoking comments. Here is how we responded to each of the issues you raised: 1. As you suggested, we have refined the concept of competitive tension and elaborated its conceptual foundation in this revision. a. We clarified our definition of competitive tension. As stated in the revised manuscript (please see page 3), competitive tension is defined as the strain between a focal firm and a given rival that precipitates the firm to take action against the rival. Consistent with competitive dynamics research, the concept of competitive tension targets the firm-dyad level and has direct behavioral implications; in line with cognitive competitive mapping research, it highlights the importance of perceptual views of rivalry. A central but unexamined construct in competitor analysis, competitive tension provides a conceptual link not only between these two research streams, but also between the static analysis of competitors and the dynamic treatment of interfirm rivalry. We justified our use of the term tension, as opposed to opposed to threat, intensity, or other terms. As explained in the revised manuscript (please see page 7), the term tension captures the idea that the pre-battle relationship between two rivals transforms into dynamic interplays involving market actions (Chen, 1996). Competitive tension acts like an energy storage agent: once there is enough build-up (because of managerial and industry psychology or history of prior battles), it will explode into competitive actions and interfirm rivalry. Also, the term tension lends itself to both objective and perceptual treatment, allowing us to integrate competitive dynamics and cognitive competitive mapping research. As a term used widely in the natural and social sciences, tension has objective definitional meanings, as in physics, fluid mechanics, and electronics, as well as subjective or perception-related applications, as in psychology and psychiatry (Lewin, 1951). As explained in the revised manuscript (page 7), competitive tension includes both objective and perceptual considerations. Objective structural tension relates to the ever-changing industry structure or market conditions in which rivals operate; perceived tension corresponds to the firm 6

7 managers and industry stakeholders view of the extent to which a given rival is the firm s primary competitor. We appreciate your suggestion of looking into various definitions of tension in physics, psychology, and psychiatry. This suggestion has been a tremendous help for us to show how the concept of competitive tension is strongly anchored in many theoretically based ideas. Thank you. b. We removed the sentence about the use of other concepts (such as pressure and threat) in aggregate industry context. We apologize for any confusion this sentence caused in the previous version. 2. We agree with you that competitive tension is a multidimensional construct and can be measured using multiple indicators. In this research, we focus on the perceptual dimension of competitive tension (perceived competitive tension) because this dimension, though its salience is known anecdotally, is relatively unexplored in the existing research on interfirm rivalry (please see page 8 in the revised manuscript). Given our specific interest in the perception of competitive tension, and to do appropriate justice to this important construct, we do not want to combine it with non-perceptual measures to form a big latent construct. We do, however, control for the objective structural tension based on a non-perceptual measure in our analysis (please see pages 13-14). Because we only have a single indicator for the concept of perceived competitive tension, we cannot run factor analysis. However, we have multiple informants for this indicator, allowing us to validate this concept using multiple responses (from managers and industry stakeholders). Please see the ICC results of our perceived competitive tension measure in the methods section (page 16). 3. Thank you for suggesting a comprehensive model for us to study competitive tension. We have revised our model to incorporate many of the relevant variables you suggested. Drawing on the awareness-motivation-capability (AMC) perspective, our revised model includes relative scale, rival s attack volume, and resource similarity as the antecedents of perceived competitive tension. The revised model controls for past performance, slack resources, and market characteristics (these firm-level variables were considered as controls rather than independent variables because we focus our analysis at the dyadic level). Understandably, some variables you suggested were not included (e.g., TMT and interfirm network characteristics) due to overall theoretical and empirical considerations. It is important to note that we consider AMC the antecedents (rather than the measurement indicators) of perceived competitive tension. We believe that AMC is a broad perspective that can be used to explain various phenomena. Thus, it is more appropriate when used as a framework for antecedents. Clearly, AMC can be measured in many different ways. We focus our AMC variables, among a number of alternatives, on relative scale, rival s attack volume, and resource similarity because 7

8 of their conceptual significance in each of the three AMC components. We have explained this in the revised paper (please see pages 9-10). 4. We fully agree with you that past competitive behavior by a given rival is an important antecedent of perceived competitive tension. In this revision, we included a new independent variable (the volume of rival s attack on a focal firm s markets) in our model. As expected, rival s attack volume, measured by the number of rival s entries into the focal firm s markets in the previous year, has a significant impact on perceived competitive tension in our results. A given rival is likely to be perceived as a focal firm s major competitor if this rival attacked the focal firm s markets in the recent past. We appreciate your summary of competitive dynamics research, including such findings as the characteristics of an action are related to the likelihood and speed of response. Your summary provided us with many useful ideas that have enriched the theoretical discussion of our research as well as the conceptualization of the competitive tension construct, and have justified the link between rival s attack volume and perceived competitive tension. Thank you. 5. As you know, it is extremely time consuming to operationalize competitive actions based on a content analysis of Aviation Daily. We currently do not have Aviation Daily for the years covered in this research. Instead of content analyzing Aviation Daily, we used the Department of Transportation's Origin-Destination data and focused exclusively on a specific aspect of competitive action, attack through market entry, in this research. 6. We like your idea of the build-up of tension as a dynamic construct. To capitalize on this idea, we include in this revision a new variable objective structural tension that captures the dynamics of market structural change (the extent to which a rival increases its presence in the focal firm s markets). It is important to note that perceived competitive tension is relatively stable compared to objective structural tension (whereas market structure may change every minute, individuals do not keep track of the detailed changes to form their perceptions). By including both perceptual and objective structural tension in our research, we have a better idea of competitive tension. Based on your suggestion, we developed a new hypothesis concerning how competitive tension is realized as competitive action (please see pages 13-14). We predicted that, controlling for objective structural tension, the greater the perceived competitive tension, the greater the volume of the firm s attack on the rival s markets. As far as we know, this is perhaps the first research that uses both perceptual and structural tension to predict competitive action. We appreciate the model that you mapped out for us. We like the three outcome variables you suggested (attack likelihood, attack volume, and attack duration). However, due to the limited amount of time we were given for this revision, we only focus on attack volume in our paper. We cannot use structural equation modeling for our analysis for two reasons. First, our dyadic level data violate a critical assumption of structural equation modeling on data independence (there is interdependence among our dyadic level observations). Second, structural equation 8

9 modeling is ideal for analyzing constructs with multiple indicators, but most of the constructs have a single indicator. 7. Thank you for recommending Oliva, Day, & MacMillan s (1998) paper and suggesting an interesting model for us. I agree with you that the build up of tension, when pushing the focal firm past the boiling point, will trigger competitive action. Although we did not use cusp analysis, our revised model is consistent with the spirit of the model you suggested. 8. We have re-conceptualized our research, and the role of market commonality, though interesting, has become less salient. In this revision, we clarified our specific interest in perceived competitive tension and highlighted its importance (its significant effect on competitive action remained even after we controlled for a significant non-perceptual structural tension measure). To capture fully the motivational component of the AMC framework, we also replaced market commonality with rival s attack volume, taking your comments here and in #4 above, when predicting perceived competitive tension. This decision also resolved the multicollinearlity problem (given that market commonality was highly correlated with other antecedents) that we had in the previous version. 9. We added a new section of Data Analyses in the revised manuscript (please see pages 18-19) to explain why we used certain analytical techniques to test our hypotheses. To check the robustness of our results, we performed additional analyses using GLS random-effect regression as well as fixed-effect regression (also known as the Least Squares Dummy Variable model), and the patterns of results of these additional analyses are the same as those shown in our paper. Thank you again for your thoughtful review that offers many useful ideas to clarify our arguments and articulate our contributions. We benefited a lot from you comments and hope that you will enjoy reading the revised manuscript. 9

10 COMPETITIVE TENSION: THE AWARENESS-MOTIVATION-CAPABILITY PERSPECTIVE (Manuscript # ) Note to Reviewer 2 We appreciate your insightful comments and suggestions on the previous version of our paper. We have revised the paper to incorporate the many great ideas you suggested in your review. In particular, we clarified our theoretical motivation of studying the perception of competitive tension and strengthened our theoretical arguments leading to hypothesis development. Moving beyond managerial cognition, we expanded our data to examine industry stakeholders perception. In addition, we performed new analyses, re-considered our research design, clarified the usage of cognition and perception, and highlighted the conceptual contributions of our paper based on many great ideas you suggested. The paper, therefore, responds in great detail to your useful critique. Let us summarize here how we dealt with the issues you raised. 1. In this revision, we clarified the theoretical foundation of our research in relation to the cognition and competitive groups. While we acknowledge the useful contributions made by cognitive competitive mapping (or cognitive competitive groups) research, our paper takes a different approach and offers new insights. First, as opposed to cognitive competitive group research, our paper advocates a social construction view of competition, considering perceived tension a collectively negotiated reality involving not only a firm s managers but also outside stakeholders (White, 1981; Barley, 1983). Second, in contrast to cognitive competitive mapping research conducted at the group or firm level, the analytical focus of our paper is on the pairbased or dyadic level. We have discussed these differences in the revised manuscript (please see pages 6-8). Thank you for recommending Hodgkinson & Sparrow s (2002) book. This is a very useful reading that provides an excellent summary of the debates about the relationship of cognitive measures to the identification and construction of competitive groups. We have incorporated relevant ideas from the book into our paper (please see pages 5-6). 2. We also clarified the logic of our theoretical arguments to address all your questions: i) Are the cognitive categories of managers quite clear-cut with regard to inter-firm competition? We believe that managers of a company, at least in the airline industry, are very clear in their minds about who their company s major competitors are. Our results show that there is strong consensus among managers with regard to the top competitors of their firm (please see page 16 for the results of ICC score). There is also a high convergence between insider and outsider perceptions in our sample industry. This is not surprising because we focused on very senior managers who knew their company and industry very well, and on well-informed industry veterans (see our response to your question #7 below). The number of major airline competitors is limited, and thus it is straightforward for managers, and industry stakeholders, to identify each company s primary competitors. ii) We removed any language in the previous version that implied firm cognizing (or perceiving). Instead, we broaden our perspective in this revision to look at the perception of 10

11 competitive tension by a firm s outside stakeholders. To do so, we expanded our research to include perceptual data of industry stakeholders (such as analysts, consultants, and travel agents). We believe that our perceptual data represent a cognitive aspect (in contrast to an objective structural dimension) of competitive tension (please see page 8 in the revised manuscript). However, we argue that such a perceptual aspect of competitive tension is socially constructed (please see page 8). It is social construction rather than firm cognition that we want to emphasize in our research. We agree with you that the number of managers surveyed within the firms in our sample is limited. Indeed, it is difficult for us to argue that one or two managers in a given firm represent the cognition of that firm. That s why we grounded our research in a social construction perspective and added outside stakeholders perceptual data in this revision. iii) You questioned assumptions concerning the nature of cognition and the role of individuals within the firms. In particular, you asked about the nature of mutual recognition. We believe that competitive relationships are asymmetric and that asymmetric relationships can be perceived. People may think, for example, that company X imposes tension on company Y. But this does not mean that people will think company Y also imposes the same tension on company X. Such asymmetry is interesting and important to investigate, and our measure does capture this asymmetry. Indeed, in our paper, we challenge previous studies that implicitly assume that all firms within an industry view their market interdependence equally (please see page 5 in the revision). As opposed to the idea of mutual recognition, we build on the idea of competitive asymmetry (Chen, 1996) in guiding our research and designing our perceptual measures. iv) You questioned whether cognitions of managers within a firm might differ. Theoretically, it is possible that managers within the same firm have different views. But empirically, in our research, managers within the same firm have almost identical responses with respect to the questions of who their company s competitors are. It would be interesting to examine the convergence and divergence of managers perceptions if we had more data from managers. However, in this version, we no longer emphasize managerial cognition. Instead, taking a social construction perspective, we are interested in the collective perception about a focal firm. 3. As you suggested, we now argue from an objectivist perspective (that is what the stakeholders expect the firms to do) in our paper. We apologize that our previous writing mixed objectivist and cognitive views. We have changed our writing in the revised manuscript to address this issue. 4. You questioned whether we need the construct of cognition to develop the arguments in our paper, since many survey methodologies that elicit managers opinions do not draw on the cognition literature. As you can see in the revised paper, we no longer argue from a managerial cognition perspective. We now use more data from outside stakeholders and argue from a social construction perspective. We do, however, compare and contrast the approach of our research to that of previous studies that draws on the idea of cognition to examine managerial categorization of competitors (e.g., Reger & Huff, 1993; Reger & Palmer, 1996). We include 11

12 these previous studies in our literature review because of our common interest in competitor analysis and the need to acknowledge their contributions. 5. We justified why our research bridged competitive dynamics and cognitive competitive mapping research. We believe that we incorporated some of the best ideas from each research stream and moved beyond them. Our overall empirical findings that theoretically derived AMC objective indicators can be used to predict perceived tension between rivals, which in turn influences future observable market behaviors, offer a conceptual and empirical fusion of these two contrasting research streams. Most importantly, we also tried to resolve some limitations in each research stream and advanced the concept of competitive tension (please see pages 6-8 in the revised manuscript). 6. We focused on the time period of for our research. The time period is chosen because it is characterized by the rapid entry of new airlines and by the expansion of existing airlines into new routes, followed by a consolidation in the industry through mergers and acquisitions. The turbulence of this period produced large variation for our investigation of competitive tension and inter-firm rivalry (for the history of the US airline industry, please see Morrison & Winston, 1995). We have explained this in the revised methods section (please see page 14). Although our data set is perhaps a little bit old, we believe that our theory and hypotheses can be applied to studies in any time period as long as there is enough variance in the variables we proposed. 7. As you requested, we provided a more detailed description of our population, the number of respondents, and the rationale for focusing on these respondents (please see pages 14-15). Our research includes 13 major airlines competing against each other in the top 10,000 city-pair markets (or routes) during the period of To assess the perceived competitive tension a given airline experienced, we surveyed informed insiders and outside stakeholders of each of the 13 airlines. We mailed a questionnaire in 1991 to knowledgeable airline executives and industry stakeholders, including 44 insiders (senior executives) and 72 outsiders (16 security analysts, 36 consultants, and 20 travel agents). These individuals had participated in a previous airline study that evaluated various competitive moves taken by airlines (Chen & MacMillan, 1992; Chen, Farh & MacMillan, 1993). The list of potential informants for the original sample was compiled from several sources, mainly the Winter 1989 edition of the World Aviation Directory. The inside executives were all senior vice presidents or holders of higher titles (excluding chief executive officers) of the sample airlines. The outside informants were selected from various sources: 1) all security analysts who followed the industry and were listed in the 1989 edition of Nelson Directory of Investment Research; 2) all consultants listed in the World Aviation Directory; 3) top 65 travel agencies (in terms of sales revenues) in the United States. Considering all together the executives and industry stakeholders responding to our survey, the number of respondents per firm ranges from one to three. A comparison of respondents and nonrespondents suggested they did not differ in their observable characteristics, e.g., firm size and 12

13 industry and company experience; about 70% of respondents had more than 20 years of industry experience. 8. As explained earlier, we now adopt a social construction perspective and include more airline stakeholders responses in our research. We thus solved the problem of lack of executive informants in some of the firms in our sample. 9. We clarified our measures to address your specific concerns: i) By expanding our research to include outside stakeholders perceptions of a focal firm s competitive tension, we now have more respondents per firm. ii) We used a ranking scheme in designing our questionnaire item. We asked our respondents to rank a focal firm s top 5 competitors and assigned a score of 5 to the most significant competitors, a score of 4 for the second significant competitor, etc. We acknowledged in the discussion section that our measure only captured the order or rank of a focal firm s competitors, rather than the absolute distance to these competitors (please pages in the revised manuscript). iii) Why fleet structure can be used as a surrogate for an airline s capability with respect to competition? The types of airplanes an airline has determine the types of routes (or the combination of long versus short distance flights) it can serve. Thus, fleet structure is critical in influencing the pattern of competition. Of course, there are other variables that can be used to measure an airline s different resources and capabilities. But fleet structure is the perhaps the best we can get to capture using objective data an airline s resources for market competition. However, the limitation of this measure is also noted in the discussion section. 10. Taking your insightful comment here, we replaced size disparity with relative scale (with a new measure) and clarified how the logic of relative scale differs from that of resource similarity. The concept of relative scale is not only theoretically appealing but also corresponds directly with its measure of operating capacity. We also revised the confusing sentences that you pointed out in your review to improve the clarity of our arguments. As noted now in the paper (please see page 10), the fundamental conceptual difference between relative scale and resource similarity is that the former is a capacity-related construct and the latter concerns the type of resources that a firm is endowed with. It is also interesting to note that even though similarity was considered to be a driving force for rivalry in cognitive competitive mapping (or cognitive competitive groups) research, scale difference (rather than similarity) is an antecedent of competitive tension in our research. Our research finding shows further how our idea of competitive tension is different from the idea of competitive groups. Thank you very much again for your detailed and thoughtful review. We have learned a lot from you and our paper has improved significantly as a result. We hope that we have addressed all your comments within a coherent and compelling document. 13

14 COMPETITIVE TENSION: THE AWARENESS-MOTIVATION-CAPABILITY PERSPECTIVE (Manuscript # ) Note to Reviewer 3 Thank you very much for your detailed and thoughtful review on the previous version of our paper. We fully understand your concerns about our approach to linking structural and perceptual conceptualizations of competition. Instead of emphasizing the structureperception link, we now focus mainly on the perception of competition tension, and our revision shows how such perception matters to competitive action even after controlling for objective structural tension. We have also revised the paper to incorporate many of the other useful and insightful ideas you provided. In particular, we have strengthened our theoretical arguments, performed new analyses, reconsidered our research design, and highlighted the paper s unique conceptual contribution. Your comments have pushed us to make the paper more coherent, distinctive, and unified. Here is how we responded to each of the issues you raised: Framing issues - We clearly described the gap in the literature that we wanted to fill and highlighted the importance of the gap (please see pages 2-3 in the revised manuscript). We argue that even though research on cognitive competitive mapping (Reger & Huff, 1993; Porac, Thomas, Wilson, Paton, & Kanfer, 1995) has provided a rigorous perceptual construction of competitor (Porac & Thomas, 1990) as well as strategic (Reger & Huff, 1993) and competitive groups (Porac, et. al., 1995), it tends to treat a firm s competitors as a homogeneous group, and has made almost no effort to examine the perception of tension between the firm and its competitors and the behavioral implications such perception entails. This gap is critical because how opponents view each other is necessary for predicting attack (Ferrier, 2001) and retaliation (Chen & MacMillan, 1992), among other forms of interfirm rivalry. - Wouldn t the fact that firms have similar resources and enter similar markets suggest that they are likely to have pretty similar cognitive taxonomies? The concept of competitive tension captures potential asymmetry in a competitive relationship (The fact that X is a competitor of Y does not imply that Y is also a competitor of X; People may think X is a threat to Y, but this does not mean that people will think Y is also a threat to X). Because of such potential asymmetry, firms may not necessarily have the same cognitive taxonomies based on the perception of competitive tension. We agree with you that it is interesting to examine what structural characteristics influence incumbent firms to take notice of new entrants. However, we do not have completely new entrants (new airlines) in our data set during the time period of our research. We do have data on new market entries (by existing airlines) and have included such data, which was painstakingly constructed, for our analysis in this revision. 14

15 - As you suggested, we used both archival and perceptual measures of competitive tension to predict competitive action (please see pages 13-14). We included in this revision an objective structural tension variable that captures the dynamics of market structural change (or the change in market commonality between years) using archival data. We found that our perceptual measure had a significant impact on competitive action it explained additional variance of competitive tension after controlling for objective structural tension. As far as we know, this is the first research that uses both perceptual and structural tension to predict competitive action. We very much like your idea of exploring whether archival measures are better at predicting certain competitive outcomes while perceptual measures are better at predicting others. However, because of the limited amount of time we had for this revision, we were unable to collect and construct new data for various competitive outcomes. We only managed to say the least to collect market entry data for measuring competitive outcome and one of the antecedents. We will keep the great idea you suggested for future research. Thank you. Methodological issues - We understand that it was problematic in the previous version that we used analyst responses to reveal whether or not a focal firm viewed another as a competitor. Instead of focusing on a focal firm s view of competition, in this revision we adopted a social construction perspective and added other industry stakeholders (analysts, consultants, and travel agents) perceptions in our analysis. We argued that these stakeholders represent market expectations of who a focal firm s competitors are. Consistent with Zuckerman s work (1999, 2000), our research suggested that firm action is shaped by market expectations. Thank you very much for recommending Zuckerman s papers - they were very useful references for our paper. - You raised a concern about our questionnaire design that included a list of all firms in our sample for our respondents to rank. This is indeed a very common design in network research and is called roster format (see, for example, Wasserman & Faust, 1994). What you suggested is an alternative to this format and is called free recall format that asks respondents to generate their own list of actors first and then rank those actors. There are different advantages and disadvantages associated with each format. Although a free recall format tends to be less intrusive, it may reflect a recency effect because respondents may not accurately recall all relevant actors and related information. Indeed, a series of studies by Bernard, Killworth and Sailer found that most of the time respondents could not accurately remember all actors they had interacted with (please see, for example, Bernard, Killworth, Kronenfeld, & Sailer, 1984 for a detailed discussion on informant accuracy and its implications for questionnaire design). Providing a list of all actors serves as a useful reminder and thus increases informant accuracy. Please note that even though we listed all 13 firms in our questionnaire, respondents were only asked to rank five firms. Our respondents were unlikely to rank some firms simply because the names of those firms were on the list (had this been the case, they would have ranked all firms). We have clarified this in a newly added footnote (please see page 15 in the revised manuscript). 15

16 - We agree with you that the actual ICC scores are of more interest than the significance levels of these scores. As you requested, we now report ICC scores in our paper (please see page 16). Please note that our calculation of the ICC scores included all the respondents (managers and industry stakeholders). Given that in each firm we only had a very limited number of managers responding to our survey, we cannot calculate ICC scores exclusively for these managers. However, we performed a series of statistical analyses for our hypothesis testing using mangers responses only, industry stakeholders responses only, and combined responses, and summarized the results of these analyses in tables 2 and 3 in our paper. - Our measures of market commonality differ from the measures used by Gimeno (1999) and Baum & Korn (1999) because ours take into account the idea of competitive asymmetry using market share and size as weights in our formula. Please note that in this revision we no longer used market commonality as an antecedent of competitive tension due to the reconceptualization of our overall model. By replacing market commonality with a new variable, rival s attack volume, we avoided the problem of multicollinearity in the previous version. Other issues You have correctly pointed out some evidence of competitive asymmetry in our data (for example, Hawaiian Airlines listed United Airlines as a competitor, while United Airlines did not). We agree with you that such asymmetry may reflect certain aspiration levels or tendencies to be optimistic or aggressive. It is also possible that some firms chose peers in a self-protective and opportunistic manner. Identifying specific factors leading to competitive asymmetry is an important area for future research. Thank you very much again for your insightful comments and suggestions. We have learned a lot from you during the review process. Your review has contributed substantially to reshaping our paper and offered many interesting directions for future research. We believe that our paper is more compelling and original in its contribution to theory and research than the previous version. We hope you enjoy reading the revised manuscript. 16