How Strategic Groups Act Competitively Within and Across Markets

Abstract

Our study analyzes rivalry within and across markets of size-defined strategic groups in the banking industry. We consider that, owing to group-level effects, like efficiency and funding, the degree of rivalry of size-defined strategic groups depends on whether the competitor is acting in the same or in a different market and whether the competing firms are within the same strategic group or in different groups. We estimate the effect of group interactions within and across loans and deposits markets on firm performance in the Spanish banking industry. We find evidences of rivalry as described in our hypotheses.

Modeling the evolution of competitive market structure via competitive group dynamics

“…We illustrate the proposed BHMM in the public banking industry. Because of its strategic and economic significance, banking has served as a research context for several studies on various sources of intra-industry competitive heterogeneity (DeSarbo and Grewal, 2008; DeSarbo et al , 2010; Ebbes et al , 2010; Mas-Ruiz and Ruiz-Moreno, 2011, 2017; Mas-Ruiz et al , 2014; McNamara et al , 2003; Penagos-Londoño and Ruiz-Moreno, 2019). Also, the banking sector represents a turbulent environment with fuzzy boundaries where identifying its competitive groups is a nontrivial problem (DeSarbo et al , 2009).…”

“…The diversity in the strategy and performance of the firms within the same industry is addressed vis a vis intra-industry competitive heterogeneity (DeSarbo et al , 2010; Noda and Collis, 2001). Researchers have addressed intra-industry competitive heterogeneity based on three different perspectives: strategic groups (Ebbes et al , 2010; Mas-Ruiz and Ruiz-Moreno, 2017), performance groups ( Wiggins and Ruefli, 1995) and impact groups (DeSarbo et al , 2007; Murthi et al , 2013). DeSarbo et al (2010) developed the framework of competitive groups and showed how traditional conceptualizations via solely strategic, performance or impact groups are inadequate to represent intra-industry competitive heterogeneity fully.…”

Identifying dynamics in strategic groups

“…marginal operating costs of loans; and SD24it: marginal operating costs of deposits. Because a bank's marginal cost is also part of the Lerner indices, we consider a translog function (Mas-Ruiz & Ruiz-Moreno 2017). This functional form is common in the analysis of banking markets because it deals with economies of scale and scope in multiproduct firms.…”