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Taking industry structuring seriously: A strategic perspective on product differentiation

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  • Richard Makadok
  • David Gaddis Ross

Abstract

Given legal impediments to consolidation and collusion, firms often resort to product differentiation to attain market power. This paper provides a formal analysis of product differentiation as a tool for such industry structuring at both the firm and industry level. We examine: how industry structure differs when firms collaborate on their differentiation decisions, and when the profitability of such collaboration is greatest; how an individual firm's differentiation decisions affect subsequent market outcomes under price competition, such as margin, market share, and profit; how mere differentiation differs from a ‘differentiation advantage’; and how changing a firm's differentiation affects its rivals through both positive externalities (by restraining rivalry) and negative externalities (by shifting competitive advantage). Our results have implications for empirical research, strategy theory, and pedagogy.

Suggested Citation

  • Richard Makadok & David Gaddis Ross, 2013. "Taking industry structuring seriously: A strategic perspective on product differentiation," Strategic Management Journal, Wiley Blackwell, vol. 34(5), pages 509-532, May.
    • Handle: RePEc:bla:stratm:v:34:y:2013:i:5:p:509-532
    DOI: 10.1002/smj.2033
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