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The study here responds to the view that the crucial problem in strategic management (research) is firm heterogeneity – why firms adopt different strategies and structures, why heterogeneity persists, and why competitors perform differently. The present study applies complexity theory tenets and a “neo-configurational perspective” of Misangyi et al. (2016) in proposing complex antecedent conditions affecting complex outcome conditions. Rather than examining variable directional relationships using null hypotheses statistical tests, the study examines case-based conditions using somewhat precise outcome tests (SPOT). The complex outcome conditions include firms with high financial performances in declining markets and firms with low financial performances in growing markets – the study focuses on seemingly paradoxical outcomes. The study here examines firm strategies and outcomes for separate samples of cross-sectional data of manufacturing firms with headquarters in one of two nations: Finland (n = 820) and Hungary (n = 300). The study includes examining the predictive validities of the models. The study contributes conceptual advances of complex firm orientation configurations and complex firm performance capabilities configurations as mediating conditions between firmographics, firm resources, and the two final complex outcome conditions (high performance in declining markets and low performance in growing markets). The study contributes by showing how fuzzy-logic computing with words (Zadeh, 1966) advances strategic management research toward achieving requisite variety to overcome the theory-analytic mismatch pervasive currently in the discipline (Fiss, 2007, 2011) – thus, this study is a useful step toward solving the crucial problem of how to explain firm heterogeneity.

The purpose of this paper is to use a dynamic model of optimal patent design and, in the presence of information externalities, to study the evolution of technological progress in the context of a pharmaceutical industry.

A theoretical analysis approach is adopted to drive the paper’s findings.

Pharmaceutical firms with an active drug discovery program behave strategically in their R&D and in the product markets. It is shown that a firm holding an earlier-expiring patent only chooses to proceed with R&D activates when the patent it holds expires if the expected discounted payoff net of R&D costs yielded by this action is positive. The expected discounted payoff net of R&D costs obtained by this firm is then decreasing in R&D costs, increasing in the cumulative quality discovered in the past R&D activates, and decreasing in the number of past R&D activities, etc.

The preceding literature on the topic works with only one brand, the brand with the highest quality. As well, the demand is assumed to be completely inelastic. In the conventional models of patent design, the role of competitive fringe firms is discussed implicitly. The model presented in this research is a rigorous continuous in-time dynamic model. It considers several differentiated products. Furthermore, the demand for a brand is taken to be a function of income, its price, and the prices of other brands. The interaction of the fringe firm with other patent-holding firms is also explicitly considered under this framework.