Product Differentiation, Industry Concentration and Market Share Turbulence

Catherine Matraves () and Laura Rondi

International Journal of the Economics of Business, 2007, vol. 14, issue 1, 37-57

Abstract: Building on the current theory of industrial concentration, we analyze the relation between market size and product differentiation, and show how product differentiation impacts market share turbulence. We first propose that in markets where vertical product differentiation dominates, firms will have an incentive to escalate investment in advertising and/or R&D as market size increases. Secondly, such (firm-specific) investments will make competitive advantage more sustainable as the firm is less imitable. This will not be the case if the market is primarily characterized by homogeneous products or horizontal product differentiation. Our predictions are tested using an original EU dataset for 1987 and 1997. Our results strongly support our predictions - the degree of market share turbulence increases with market size. However, this relation is weakened by competitive investment in advertising and R&D.

Keywords: Product Differentiation; Market Size; Turbulence (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (8)

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Working Paper: Product Differentiation, Industry Concentration and Market Share Turbulence (2005)
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DOI: 10.1080/13571510601097124

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