Strategic Rivalry and Transient Market Power of Firms

Abstract

This pioneering empirical study, of the behavior of firms in a differentiated oligopoly, has four contributions. First, it defines clusters of competitive firms based on (a) homogeneity of products, (b) their geographic proximity, (c) the resources available and competence of the management, and/or (d) the strategies they employ to obtain strategic dominance. Second, it was noted that within each cluster, firms seek to stabilize consumer loyalty and/or compete for a higher market share while choosing their strategies. Third, measures of the market power of firms per unit of sales were developed accounting for the inelasticity of demand as well as the market share. Fourth, it was noted that a firm may derive market power over the sales of the firm instead of price-cost margins. The empirical results suggest that a variety of patterns of behavior are discernible within a cluster.