Product Differentiation, Industry Concentration and Market Share Turbulence
AbstractBuilding on the current theory of industrial concentration, we analyze the relation between market size and product differentiation, and show how product differentiation impacts market share turbulence. We first propose that in markets where vertical product differentiation dominates, firms will have an incentive to escalate investment in advertising and/or R&D as market size increases. Secondly, such (firm-specific) investments will make competitive advantage more sustainable as the firm is less imitable. This will not be the case if the market is primarily characterized by homogeneous products or horizontal product differentiation. Our predictions are tested using an original EU dataset for 1987 and 1997. Our results strongly support our predictions - the degree of market share turbulence increases with market size. However, this relation is weakened by competitive investment in advertising and R&D.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.
Volume (Year): 14 (2007)
Issue (Month): 1 ()
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Other versions of this item:
- Catherine Matraves & Laura Rondi, 2005. "Product Differentiation, Industry Concentration and Market Share Turbulence," CERIS Working Paper 200514, Institute for Economic Research on Firms and Growth - Moncalieri (TO).
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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