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. Our basic results highlight 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. 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 product or horizontal product differentiation. Our predictions are tested using an original EU dataset for the period 1987-1997. 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.
|Date of creation:||Dec 2005|
|Date of revision:|
|Contact details of provider:|| Postal: Via Real Collegio, 30 10024 - Moncalieri TO|
Web page: http://www.ceris.cnr.it/
More information through EDIRC
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.:
- Bresnahan, T.F & Reiss, P.C., 1989.
"Entry And Competition In Concentrated Markets,"
151, Stanford - Studies in Industry Economics.
- 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.
- 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.
- Schmalensee, Richard, 1992. "Sunk Costs and Market Structure: A Review Article," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 125-34, June.
- Jeffrey Campbell, 2000.
"Market Size Matters,"
Econometric Society World Congress 2000 Contributed Papers
1225, Econometric Society.
- Roller, Lars-Hendrik & Sinclair-Desgagne, Bernard, 1996. "On the heterogeneity of firms," European Economic Review, Elsevier, vol. 40(3-5), pages 531-539, April.
- 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.
- Mueller,Dennis C., 2009.
"Profits in the Long Run,"
Cambridge University Press, number 9780521101592, December.
- Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 131-46, December.
- 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.
- 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.
- 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.
- Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and Sustainability of Competitive Advantage," Management Science, INFORMS, vol. 35(12), pages 1504-1511, December.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- 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.
- 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.
- Matraves, Catherine, 1999.
"Market Structure, R&D and Advertising in the Pharmaceutical Industry,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 47(2), pages 169-94, 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).
- 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.
- 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.
- 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.
- Schmalensee, Richard, 1983. "Advertising and Entry Deterrence: An Exploratory Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 636-53, August.
- Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-83, September.
- Ashish Arora & Alfonso Gambardella, 1996. "Domestic Markets and International Competitiveness," Industrial Organization 9605001, EconWPA.
- 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.
- Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
When requesting a correction, please mention this item's handle: RePEc:csc:cerisp:200514. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Enrico Viarisio)or (Anna Perin) or (Giancarlo Birello)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.