The Red Queen Effect: Competitive Actions And Firm Performance

Abstract

We investigate the Red Queen effect as a contest of competitive moves or actions among rivalrous firms. The results from a multi-industry study of over 4,700 actions confirms the existence of Red Queen competition, whereby a firm's actions increase performance but also increase the number and speed of rivals' actions, which, in turn, negatively affect the initial firm's performance. We further show that this Red Queen effect depends on industry context and a focal firm's market position.