Management Review

›› 2019, Vol. 31 ›› Issue (4): 147-161.

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The Effects of Multimarket Contact on New Market Entry

Deng Xinming1,2, Liu Yu1,2, Liu Guohua3, Long Liangzhi1,2   

  1. 1. School of Economics and Management, Wuhan University, Wuhan 430072;
    2. Research Institute of Strategic Management, Wuhan University, Wuhan 430072;
    3. School of Business and Management, Shanghai International Studies University, Shanghai 200083
  • Received:2016-10-19 Online:2019-04-28 Published:2019-04-26

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Abstract:

The industry of Chinese budget hotels has experienced rapid expansion and development in recent years. The competitive landscape has been going through constantly changing. Because of the industry characteristics, all kinds of budget chain brand hotels encounter and compete with each other in various geographic markets, which indicates the phenomenon of multimarket competition is obvious. This paper chooses JINJIANG INN, HOME INN and HANTING INN, three representative enterprises of Chinese budget hotel industry, as research object and the year 2007-2014 as studying period. We choose 285 prefecture-level cities as geographic markets and define company-to-market as the level for analysis. We investigate the effects of the degree of multimarket contact on how possible a company would initiate a strategic entry into a new market from the perspective of dynamic competition. The empirical results show that the degree of multimarket contact has an inverted U-shape influence on new market entry. For companies that contact each other in multiple markets, the likelihood of new market entry will rise as the degree of multimarket contact increases when the degree of multimarket contact is relatively low. In this stage, the leading function is the goal of foothold in rivals' markets, acquiring more competitive intelligence of rivals. However, when the degree of multimarket contact is relatively high, new market entry rate will decline as the degree of multimarket contact increases. In this stage, the leading function is the strategic deterrence of multimarket companies that they have abilities to implement retaliate actions in multiple markets,which leads to the mutual forbearance of each other. The paper also introduces market concentration and sphere of influence these two moderate variables. We find that market concentration weakens the inverted U-shape relationship between the degree of multimarket contact and new market entry. The sphere of influence weakens the facilitating effect that multimarket contact has on market entry and promotes the inhibiting effect that multimarket contact has on market entry.

Key words: budget hotels, multimarket contact, new market entry, market concentration, reciprocity