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PROXIMITY, VICARIOUS LEARNING, AND LOCATION CHOICE FOR NEW OUTLETS IN SPATIALLY-DISPERSED INDUSTRIES

A key question for organizational learning research is to determine the conditions under which firms are able to gain information from the activities and performance of other firms and then use what they learn to guide their own strategy. In this paper, we study the business outlet location choices of locally and distantly owned firms. We ask whether locally and distantly owned firms will react differently to information contained in counts of existing and exited business outlets in a given market when considering that market as a possible location for a new outlet. Using entry and exit data from the Texas drug store, video rental, and pizza restaurant industries, we find that (1) entrants with more distant headquarters are more likely to react to outdated information of counts of existing outlets while locally headquartered firms react only to up-to-date information, and (2) entrants with local headquarters are more likely to avoid areas with a large number of recent exits. We interpret these results as support for two main hypotheses. First, distantly headquartered firms are less likely to detect firm exits than are locally headquartered firms. Second, locally headquartered firms react to more recent information about their local market than do distantly headquartered firms. These findings identify an important type of local knowledge that allows local firms to compete in their home markets with much larger distantly headquartered firms.