Competitive Strategies, Perceived Competition and Firm Performance of Micro Firms: The Case of Trento

We explore what strategies incumbent micro firms adopt when they are faced with different levels of competition, using longitudinal data from 2134 micro firms in trento, italy. We measure their preference for a cost leadership or differentiation strategy compared to the default of non-coherent strategic behavior. Our results confirm that a perceived threat of competition pushes firms to take strategic action, while a market level measure of competition has no influence on a firm’s strategic behavior. A differentiation strategy is preferred by younger entrepreneurs with higher levels of education and previous entrepreneurial experience, while at the same time previous entrepreneurial experience is negatively associated with a cost leadership strategy. Thus, considering personal characteristics and perceptions can help improve our understanding of how competitive strategies are formed. In line with previous studies, we could not confirm a short-term effect of following a certain competitive strategy on firm performance.