Taking industry structuring seriously: A strategic perspective on product differentiation |
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Authors: | Richard Makadok David Gaddis Ross |
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Institution: | 1. Goizueta Business School, Emory University, , Atlanta, Georgia, U.S.A;2. Columbia Business School, Columbia University, , New York, New York, U.S.A |
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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. |
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Keywords: | product differentiation industry structure competitive advantage rivalry collusion |
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