Strategic Competition and the Persistence of Dominant Firms: A Survey
(1982) , 38 pages
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- Abstract
- (en) In the rivalrous struggle to create, maintain and expand favourable market positions, firm's actions are intended not only to directly affect the current conduct of rivals, but also to have an indirect effect by altering market structure in a way which constrains rival's subsequent actions. In this dynamic process, market strategies or conduct (the control variables) interact with market structure (the state variable) , and current conduct can become imbedded in future market structure through strategic investments made by firms to bar entry and reduce intra-industry mobility (for some analysis of this view of industry dynamics, see Jacquemin, 1972; Caves, 1976, Part I; Caves and Porter, 1977; Spence, 198la, p.513 and Stiglitz, 1981, p. 187). Of course, not all investments made by firms have the intended effect on market structure, and the purpose of this survey is to consider a recent body of literature which has devoted itself to precisely this point. This work is of interest because of the new light it has shed on the combined structural and strategic origin of market power; that is, on the hoary question of the persistence and profitability of dominant firms (compare Posner, 1972, p.130 with Williamson, 1975, p. 218 for recent contributions to this old debate; Worcester, 1957 is the classic source of doubt about persistence), The literature seems to have coalesced around two basic types of model. By far the most common approach is to assume an initial asymmetry in favour of incumbent firms: this makes them dominant in the sense that it allows them to make commitments prior to entry (i.e. it gives them first mover advantages). A second type of model treats the entrant and the incumbent symmetrically, allowing each the ability to affect the other's strategy; in equilibrium, a dominant firm, in the sense of having gained a first mover advantage, may or may not emerge as a consequence of some other asymmetries, such as asymmetry in information.
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Encaoua, D., Geroski, P., & Jacquemin, A. (1982). Strategic Competition and the Persistence of Dominant Firms: A Survey (Working Papers Institut des sciences économiques 8206). https://hdl.handle.net/2078.5/278952