Do strategic groups exist? an economic framework for analysis

Abstract

This paper offers a framework and methodology for resolving the question regarding the existence of strategic groups. We say that a strategic group exists if characteristics of the group affect firm performance independently of firm‐level and industry‐level effects. We argue that group‐level effects are a byproduct of strategic interactions among members, and develop an empirical testing model, based on the ‘New Economics of Industrial Organization,’ to distinguish true group effects from spurious effects. From this model, we derive a series of logically consistent propositions, suggesting that while strategic interactions are critical for a group‐level effect on profits, mobility barriers are necessary to preserve both groups and their effects over time. A review of prior empirical studies of strategic groups suggests that the inconclusive nature of prior research has been due more to the lack of a theoretical foundation for empirical analysis than to the nonexistence of groups. To the extent that our methods have been employed, there is limited evidence that a rigorous search for strategic groups may prove fruitful. © 1998 John Wiley & Sons, Ltd.

Research on Competitive Dynamics: Recent Accomplishments and Future Challenges

“…A third group is relatively small research and development firms focused solely on one or a few therapeutics, often through alliances with big pharma firms. The long-studied question of whether strategic groups exist and, if they do, how they affect firm performance remains central in the literature (Dranove, Peteraf & Shanley, 1998). A newer theme of strategic groups as referents has also emerged.…”

Developing Business School Strategies: A Practitioner-Oriented Conceptualization

“…e.g. Dranove, Peteraf, & Shanley, 1998;Flavian & Polo, 1999;DeSarbo et al, 2008). Main competitors are those who are active in the same strategic group, i.e.…”

Asymmetric rivalry within and between strategic groups

“…Along these lines, recent studies have integrated mobility barriers into a new theorization of the strategic group, one based on members' strategic interactions. Thus, Dranove et al (1998) focus on the performance effects of intra-group behavior. Group-level effects on performance derive from the market power, efficiency, or differentiation produced by the members' strategic interactions.…”

“…Nevertheless, researchers have suggested that the fundamental question relates not to comparisons of inter-and intra-group rivalry, but rather to how groups act competitively (see Smith, Grimm, and Wally, 1997). These researchers point out that competition and collusion are not mutually exclusive and that a variety of combinations of collective and competitive actions can exist simultaneously (Dranove, Peteraf, and Shanley, 1998).…”