" Academy of Management Journal 1999, Vol. 42, No. 4, 372-388. THE ROLE OF COMPETITIVE ACTION IN MARKET SHARE EROSION AND INDUSTRY DETHRONEMENT: A STUDY OF INDUSTRY LEADERS AND CHALLENGERS WALTER J. FERRIER University of Kentucky KEN G. SMITH CURTIS M. GRIMM University of Maryland Market share erosion and dethronement of market leaders are examined through the lens of "Austrian" economics. Our results suggest that leaders are more likely to experience market share erosion and/or dethronement when—relative to industry challengers—they are less competitively aggressive, carry out simpler repertoires of actions, and carry out competitive actions more slowly. These findings, hased on seven years of data collected in 41 industries, contrihute to research on hypercompetition, organizational decline, and competitive dynamics. Alex Trotman's goal: To make Ford No. 1 in world • auto sales. Kellogg's cutting prices . . . to check loss of market share. Amoco scrambles to remain king of the polyester hill. — Headlines from the Wall Street Journal In the research presented here, we explored the extent to which dethronement and market share erosion are a function of the competitive behaviors or actions of industries' market share leaders and their respective number two challengers. More spe- cifically, we developed and tested a set of hypoth- eses concerning the characteristics of competitive actions carried out by market share leaders and challengers and the impact of these competitive behaviors on the erosion of market share gap be- tween the two and the likelihood of leader de- thronement. For many firms, sustaining industry leadership, dethroning the current leader in their industry, or closing the market share gap between themselves and the current leader are key organizational objec- tives. Other things being equal, market share lead- ers are more profitable because they exploit econ- omies of scale and market power, as well as first- mover and reputational advantages (Armstrong & Collopy, 1996; Buzzell, Gale, & Sultan, 1975; Lieberman & Montgomery, 1988; Zeithaml & Fry, We wish to thank Javier Gimeno for many helpful comments on a draft of this article. 1984). Tbe headlines cited above are evidence of the importance of market leadership. Ford boldly proclaimed its intent to win the battle for industry leadership among the world's automobile produc- ers. Kellogg's slashed prices in an effort to cling to its shrinking lead in the American breakfast cereal race. Finally, Amoco carried out an aggressive ca- pacity expansion campaign to preempt a heavy at- tack by rivals on its market share lead in purified terephthalic acid—a raw material from which poly- ester is made. These examples illustrate botb tbe importance of market sbare leadersbip for many firms and their need to fiercely defend their leading positions against challengers. Were these challeng- ers ever to attain their goal of market leadersbip, incumbent leaders, exemplified bere as General Motors, Kellogg's, and Amoco, would be de- throned. There has been a significant amount of research on tbe persistence of market share leadersbip and changes in market sbare among leading firms. For instance, Weiss and Pascoe (1983) found tbat tbe market sbare leaders identified in 1950 were the same as tbose in 1975 for only 39 percent of the industry segments in their study. For this same time period, Mueller (1986) found market leader- sbip stability in only 44 percent of tbe industries studied. Much of this research, bowever, is rooted in industrial organization economics and has fo- cused on industry characteristics or the character- istics of dominant firms (see Scberer and Ross [1990] for a review of this literature). And although important management and marketing researcb has examined the effects of product innovation, pio- 372