Competing in Crowded Markets: Multimarket Contact and the Nature of Competition in the Enterprise Systems Software Industry-Siddharth Bhattacharya

The ESS market has grown in size and consists of several horizontal markets around specific software components. Although individual ESS firms do not develop all the software components, each firm typically offers several of these components. ESS firms should benefit from competing in as many product markets and serving as many vertical industry segments as possible. Theories of multimarket contact suggest that ESS firms can engage in tacit collusion and mutual forbearance to reap performance benefits. Second, many of the markets where ESS firms operate are crowded with rivals. Crowded markets subject firms to high market domain overlaps with their industry rivals and adversely impact their performance. Thus the paper asks the following research questions: Should ESS firms compete in as many markets as possible? Second, are they better off by avoiding crowded markets?, Do they benefit by repeatedly facing rival firms in multiple markets. The data comes from an unbiased industry group(Reed Elsevier Inc.) that employed a consulting organization to collect revenue and other information for nearly a complete set of ESS firms through surveys every other year. Additional elements such as firm size and alliances are acquired from other independent sources including the Mergent Online company database, Security and Exchange Commission filings, Gale Group database, and One Source Business Browser. The empirical analysis consists of a time fixed effects, random-coefficients regression. Results show that once a firm sells a component it benefits by creating templates for different vertical industry segment. Higher multimarket contact leads to better firm performance. Externality benefits might indeed be diluted by heightened rivalry. Finally, results reveal that firms operating in crowded markets and experiencing high market overlap can enhance their performance through multimarket contact. Robustness checks are put in place to rule out endogeneity concerns and validating the use of the random effects model.