Dr. Ohad Ref, Ono College
The Decision to Enter New Product Markets: Firm Experience and Performance Feedback (with Zur Shapira)
Two central assumptions in the behavioral theory of the firm are that performance relative to aspiration level (i.e.,performance feedback) affects firms' behavior, and that firms learn from their experience, that is, the probability of a specific action, such as entering new markets, is conditional upon their history. Yet, the current literature has left open the question of how the exact same feedback affects the response of firms with and without prior experience in a specific area, and, in particular, how prior experience interacts with performance feedback to affect firms' behavior. This study examines the above question in the context of entering new product markets. It develops a theoretical framework to explain how previous experience in entering new product markets affects firms' propensity to enter such markets, specifically by interacting with both negative and positive performance feedback.
This study offers a more nuanced and richer analysis of both negative and positive performance feedback than much of the current literature that: (1) implicitly assumes that performance feedback induces uniform responses irrespective of organizational heterogeneity, such as the existence or absence of prior experience in entering new product markets, and (2) normally assumes a linear effect for both negative and positive performance feedback, that is, it rarely distinguishes between situations that are in the neighborhood of aspiration level and those that are well below or above it.