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Structural Analysis of Competitive Behavior: New Empirical Industrial Organization Methods in Marketing

Author

Listed:
  • K. Sudhir

    (School of Management)

  • Vrinda Kadiyali

    (Samuel Curtis Johnson Graduate School of Management)

  • Vithala R. Rao

    (Samuel Curtis Johnson Graduate School of Management)

Abstract

The impact of a firm's strategic marketing mix choices on profitability can be evaluated by understanding the impact of those choices on consumer demand for the firm's products and on the firm's costs. Additionally, a firm's strategic marketing mix choices, and its demand and costs can be affected by rival firms' strategic choices. Therefore, to understand the effects of choice of marketing mix on profitability, we have to understand its effects on demand, cost and competitor reactions. The effects of choices of marketing mix on consumer demand have been analyzed in great depth in marketing, but research on the strategic reactions of competitors to such choices have been far more limited. The New Empirical Industrial Organization (NEIO) framework provides us with a source of methods that has potential to substantially add to our insights about competitive interactions among firms. In this paper, we first discuss a simple NEIO model to illustrate the basic methodology. We then discuss the contributions of this literature to our knowledge of competitive marketing strategy. In the process, we discuss methodological extensions of the basic model that are needed to model the institutional realities of specific markets. We also summarize how the existing literature has evolved, and provide our view of where the literature might profitably proceed from here. In particular, we discuss how future methodological innovations in the dynamics of competition, discrete strategy choice, and asymmetric information estimation will enable wider application of this methodology to competitive marketing strategy issues. The main advantage of NEIO studies is that they provide greater understanding of the competitive behavior in specific markets or industries compared to cross-sectional studies across industries. Bountiful opportunities exist for additional studies that focus on similar phenomena in different markets to draw generalizable conclusions from this line of research.

Suggested Citation

  • K. Sudhir & Vrinda Kadiyali & Vithala R. Rao, 2002. "Structural Analysis of Competitive Behavior: New Empirical Industrial Organization Methods in Marketing," Yale School of Management Working Papers ysm231, Yale School of Management.
    • Handle: RePEc:ysm:somwrk:ysm231
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    Cited by:

    1. Jean-Pierre Dubé & Puneet Manchanda, 2005. "Differences in Dynamic Brand Competition Across Markets: An Empirical Analysis," Marketing Science, INFORMS, vol. 24(1), pages 81-95, September.

    More about this item

    Keywords

    New Empiricial Industrial Organization; Structural Models; Competition;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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