Product Differentiation, Industry Concentration and Market Share Turbulence
Building 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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 14 (2007)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/CIJB20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/CIJB20|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dixit, Avinash, 1980.
"The Role of Investment in Entry-Deterrence,"
Royal Economic Society, vol. 90(357), pages 95-106, March.
- Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
- Caves, Richard E & Porter, Michael E, 1978. "Market Structure, Oligopoly, and Stability of Market Shares," Journal of Industrial Economics, Wiley Blackwell, vol. 26(4), pages 289-313, June.
- Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
- GABSZEWICZ, Jean J. & THISSE, Jacques-François, "undated". "Price competition, quality and income disparities," CORE Discussion Papers RP 370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Schmalensee, Richard, 1992. "Sunk Costs and Market Structure: A Review Article," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 125-134, June.
- Khalid Sekkat & Adriaan Dierx & Fabienne Ilzkovitz, 2004. "European integration and the functioning of product markets," ULB Institutional Repository 2013/7310, ULB -- Universite Libre de Bruxelles.
- Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
- Mueller,Dennis C., 2009. "Profits in the Long Run," Cambridge Books, Cambridge University Press, number 9780521101592.
- Mueller,Dennis C., 1986. "Profits in the Long Run," Cambridge Books, Cambridge University Press, number 9780521306935.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October.
- Bresnahan, T.F & Reiss, P.C., 1989. "Entry And Competition In Concentrated Markets," Papers 151, Stanford - Studies in Industry Economics.
- Jeffrey R. Campbell & Hugo A. Hopenhayn, 2005. "Market Size Matters," Journal of Industrial Economics, Wiley Blackwell, vol. 53(1), pages 1-25, 03.
- Jeffrey Campbell, 2000. "Market Size Matters," Econometric Society World Congress 2000 Contributed Papers 1225, Econometric Society.
- Jeffrey R. Campbell & Hugo A. Hopenhayn, 2003. "Market size matters," Working Paper Series WP-03-12, Federal Reserve Bank of Chicago.
- Jeffrey R. Campbell & Hugo A. Hopenhayn, 2002. "Market Size Matters," NBER Working Papers 9113, National Bureau of Economic Research, Inc.
- Matraves, Catherine, 1999. "Market Structure, R&D and Advertising in the Pharmaceutical Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(2), pages 169-194, June.
- Catherine Matraves, 1998. "Market Structure, R&D and Advertising in the Pharmaceutical Industry," CIG Working Papers FS IV 98-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 131-146, December.
- Ashish Arora & Alfonso Gambardella, 1996. "Domestic Markets and International Competitiveness," Industrial Organization 9605001, EconWPA.
- Marcus Asplund & Volker Nocke, 2003. "Firm Turnover in Imperfectly Competitive Markets," PIER Working Paper Archive 03-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Davies, Stephen & Rondi, Laura & Sembenelli, Alessandro, 2001. "European Integration and the Changing Structure of EU Manufacturing, 1987-1993," Industrial and Corporate Change, Oxford University Press, vol. 10(1), pages 37-75, March.
- S.A. Lippman & R.P. Rumelt, 1982. "Uncertain Imitability: An Analysis of Interfirm Differences in Efficiency under Competition," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 418-438, Autumn.
- Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and the Sustainability of Competitive Advantage: Reply," Management Science, INFORMS, vol. 35(12), pages 1514-1514, December.
- Lyons, Bruce & Matraves, Catherine & Moffatt, Peter, 2001. "Industrial Concentration and Market Integration in the European Union," Economica, London School of Economics and Political Science, vol. 68(269), pages 1-26, February.
- Roller, Lars-Hendrik & Sinclair-Desgagne, Bernard, 1996. "On the heterogeneity of firms," European Economic Review, Elsevier, vol. 40(3-5), pages 531-539, April.
- Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and Sustainability of Competitive Advantage," Management Science, INFORMS, vol. 35(12), pages 1504-1511, December.
- Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-1483, September.
- Schmalensee, Richard, 1983. "Advertising and Entry Deterrence: An Exploratory Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 636-653, August. Full references (including those not matched with items on IDEAS)