New approach to market structure analysis

Abstract

Competitive market structure analysis is considered essential in order to achieve and sustain a competitive advantage and, consequently, to improve performance. For the analysis, there have been two approaches such as consume-based and supply-based approaches. In the marketing area, previous literature has performed the market structure analysis in the consumer-based perspective, but paid little attention to the firm-based perspective. However, there are situations that firm-based perspective can be more informative than consumer-based one. This article consists of three chapters where we will describe the firm’s perspectives to understand competitive market structure : First, we show the usefulness of competitive reactions by developing the framework of diagnosing competitive reactions in Chapter 2. Especially, the focus is on the market such that a short-term effect is critical and immediate reaction is possible. In this chapter, we find that the firms tend to react to competitors’ action in accordance with consumers’ reaction. Second, we suggest the firm-based market structure analysis using competitive reaction model based on the lesson of previous chapter. Then we test when the firm-based approach and consumer-based approach show the consistent results. The empirical result shows that two approaches are consistent when the market is stable and structured. Third, we indicate the problems of traditional competitive reaction model, and suggest a Hierarchical Competitive Reaction Model integrating the strategic group analysis. Our model reflects the information on the magnitude of response and shows the clear competitive interaction among firms. Also, it lessens the number of parameters so that technical problems may decline. In summary, we perform three independent studies that are interlinked with regard to firm-based perspective using competitive reaction model. Each study gives a meaningful implication on the subject.