Does market power drive business model innovation? Evidence from Italian family manufacturing firms

The increasingly dynamic and uncertain environment in which firms operate has strengthened the need to understand how firms react to changing conditions and unpredicted events. Using the information on business model innovation collected through a unique survey on Italian manufacturing companies, we study if and how variations in the firm’s competitive position in the product market, proxied by the corporate markup, prompt proactive or reactive changes in the firms’ business model. Drawing upon the performance feedback approach, we find that markup variations foster business model innovation, and that the degree of family involvement shapes this influence. In particular, family firms turn out to be significantly more proactive (they react proactively to both negative and positive performance feedback) than family firms with lower family involvement and non-family firms. Interestingly, positive performance feedback encourages family firms to invest and strengthen those areas of the business model that are often considered weak in this type of company.