Heterogeneous firms and barriers to mobility

Why are firms within an industry so different?

Barriers to mobility: firms in more profitable position are protected against
intra-industry rivals by barriers to mobility (generalize barriers to entry)
Firms within an industry are likely to differ systematically in traits other
than size, so that the industry contains subgroups of firms with different
structural characteristics: strategic groups (Hunt 1972;Porter 1980)
Each industry consists of groups of firms, each group composed of firms
that are quite similar to one another along structural dimensions.

Key strategic dimensions (exs)

specialization
brand identification
Extent of Geographic coverage
Number of Market segments served
Distribution Channels used
product quality
technological leadership
vertical integration
cost position
service
price policy
relationship to parent company, if any

Strategic groups in the pharma industry

Mobility barriers
The height of entry barriers depends on the particular strategic group that
the entrant seeks to join
Mobility barriers are group-specific entry barriers that restrict shifting
strategic position from one strategic group to another
Mobility barriers prevent quick imitation of successful strategies
The most important aspect of any strategic group analysis is identifying the
mobility barriers that impede movement between groups

the five forces have different impact on different strategic

groups
Threat of entry
Entry is no more a yes/no choice
Must be targeted to a particular group
Entry paths

Internal rivalry
factors increasing rivalry
number of groups on the industry and market share distr. among groups

market interdependence of groups (overlap of segmentation and product

differentiation)

Bargaining power of buyers/suppliers

common suppliers/buyers : reduce the number of differentiating factors
among groups
different suppliers/buyers add dimensions of differences among groups
Threat of substitution
will be different for different strat. groups...
e.g. role of differentation and switching costs

Within group interactions

intensity of within-group rivalry
number of groups in the industry and market share distr. within groups
market interdependence within groups (overlap of segmentation and
product differentiation)

scale effects (market share matters!)

Cost of entry
Organizational capabilities to implement chosen strategy

Strategic Maps of the United States Airline Industry

The Late 1970s
International

Laker

The Early 1990s

TWA

Pan
Am

International
United

World

Geographic Scope

Braniff

American

North
west

Conti- Northwest
nental

Eastern
United

USAir

Delta

National

Delta

TWA

National

American

Continental
Western

Southwest

RepublicOzark

USAir Piedmont
Southwest

Regional

Frontier

Texas Intl

AirCal

Kiwi

PSA

No Frills

Regional
Full Service

Quality of Service

Reno
Air

America
West

Others

No Frills

Quality of Service

Full Service

Performing Strategic Groups analysis:

identify key strategic dimensions
are there barriers to mobility?
patterns of competition within the groups
pattenrs of competition between groups (market
interdpendencies)

Strategic group analysis links industry analysis to firm analysis

(Fleisher, Bensoussan)