Statistical analysis of firm interdependence using duration data—parametric approach

A pioneer first enters the market as the monopolist and later experiences the competition when a similar product is brought to the market by the competitor. In 2012, Wang and Xie suggested to decompose the pioneer survival to “monopoly” and “competition” durations and estimate the two survivals of the pioneer individually with the competitor's survival via regression analysis. In their article, several regression analyses were performed to study the effect of order entry to the pioneer and the later entrant in different market status. Using the same datasets from their study, our main interest is to investigate the interdependent relationship between two competitive firms and study whether the market pioneer and the later entrant can benefit from the competition. The major contribution of this article is that the interdependence between two competitive firms is explicitly expressed and three survival durations can be estimated in one model. The proposed method relates the survival times of two competitive firms to pioneer's monopoly time and some observable covariates via proportional hazard model, and incorporates frailty variables to capture the interdependence in the competition. This article demonstrates a new method that formulates the interdependence between competitive firms and shows data analyses in the industries of newspapers and high technology.