Language and Competition: Communication Vagueness, Interpretation Difficulties, and Market Entry

Firms have a lot to lose from the entry of competitors into their markets. Grounded in the research on interfirm rivalry and strategic communication, we proposed and tested hypotheses suggesting that, when the managers of incumbent firms perceive a high threat of entry, they are more likely to use vagueness in their corporate communications to make their strategies and actions harder to discern. This lessened interpretation results in fewer competitive entries by potential entrants. We used computerized content analysis to quantify the use of vague language in incumbent firms' annual reports and empirically tested our hypotheses through data from the U.S. domestic airline industry. We found robust support for our hypotheses. By revealing that strategic use of language shapes competitive interactions, our research sheds new light on the process through which information is delivered, received, and interpreted by rivals. This process is at the heart of competitive dynamics and strategy research.