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Strategic Groups : an Application to Foreign and Domestic Firms in Spain*

Published online by Cambridge University Press:  17 August 2016

M.P. Donsimoni  and
V. Leoz-Arguelles
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Extract

The theory of Industrial Organization has traditionally assumed that firms in an industry are alike in all important dimensions except for their market share. In this context, a large body of the literature posits that some long run structural features on an industry such as the size distribution of sellers, the nature of the product and of technology and the existence of barriers to entry generate market power. Above normal profits are the manifestation of this market power and firms are assumed to benefit from it in proportion to their market share.

This theory of industry-wide profit determination has recently been challenged by several authors (Hunt (1972), Newman (1978), Porter (1979), Caves and Pugel (1980), Encaoua and Franck (1980), Encaoua and Jacquemin (1981)). In particular, they have emphasized differences among firms’ strategies within an industry, indicating that these differences appear to be rather stable in the long run. Hence, strategic groups, i.e., groups of firms highly symmetrical in their strategies have been introduced as an additional element of market structure. The resulting hypothesis states that industries with substantial heterogeneous strategic groups should not fit the traditional structure-performance paradigm as well as industries with homogeneous strategic groups. Empirical support for this hypothesis can be found in Newman (1978) and Encaoua and Franck (1980).

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 47 , Issue 3-4 , September 1981 , pp. 291 - 306
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1981 

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Footnotes

**

C.R.I.D.E., Université Catholique de Louvain.

*

The authors are particularly grateful to Paul Geroski whose comments induced a drastic rewritting of this paper. Previous criticisms have also improved the actual presentation, they emanated from A. Cardani, R. Caves, D. Encaoua, A. Jacquemin, J.P. Lemaître, T. Pugel, R. Shakotko, E. de Souza, and S. Wellicz. The remaining errors are clearly only the authors’ doing.

References

REFERENCES

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