THE COGNITIVE EMBEDDEDNESS OF COMPETITION AND ENTREPRENEURIAL PERFORMANCE IN THE NEW YORK CITY RESTAURANT INDUSTRY

New York University, New York NY

Investigators

Abstract

There is substantial interest in how and to what extent product categories shape which products we compare, review, evaluate, and consume, and which firms we choose to purchase from. Current interest in how firms and products are categorized focuses primarily on the detrimental consequences of miscategorization for firm performance. By comparison, our understanding of which product and firm level attributes define membership in a category is less well developed. Probing these attributes is vital to determining the relative comparability of products and firms, as well as the competitive boundaries of markets. We consider these issues in the food and beverage industry, which is an ideal setting to explore questions about product categories, competition and firm performance. Given the variety of product types and variants within type, as well as the spatial proximity of firms, comparability through categorization shapes not only how consumers compare and choose among different options but also how firms compete and with whom, as well as how and where new firms are established. A focus on the food and beverage industry also has the benefits for enhancing understanding of the dynamics associated with how female and minority participation may affect firm competitiveness, because the industry includes more female and minority managers than any other industry. Identifying the boundaries of competition and their effects in imperfectly competitive markets has challenged both theorists and empiricists. Imperfectly competitive markets are those in which producers can differentiate themselves from one another along one or more dimensions of products and/or services. The notion of differentiation itself, however, is non-trivial and dependent upon complex sets of similarity inferences among buyers, firms, suppliers, and third parties such as media critics, analysts, and regulators. Firms and products can be described along a large number of attributes, and can be viewed as more or less similar depending on the attributes used for comparison, how these are defined, when they are compared, and by whom. This complex dimensionality is at the root of many theoretical and practical questions regarding how a market is demarcated, what firms are competing in the same market, the competitive structure of a market, the effect of this structure on firm outcomes, and even the meaning of imperfect competition and competitive advantage. We posit that imperfectly competitive markets are cognitively embedded across levels of analysis. This embeddedness raises important questions about the consistency and coherence of market interpretations across levels, and also requires the use of different sorts of data to fully understand competitive structures and their effects. We propose to address this gap in the literature on markets by using multi-level data on competition among firms in food and beverage industry, and by using these data to account for entrepreneurial success or failure in this industry. Our data consists of the archival data (e.g., demographic composition of neighborhoods, the revenues of firms, third-party reviews) and primary data (e.g., interview and survey data from owners). We will first map the five-year competitive structure of the industry, and then use this structure to predict the hazard of failure of firms starting the following year.