A unified theory of market partitioning: an integration of resource-partitioning and sunk cost theories

Abstract

Our objective was to, integrate a sociological and an economic theory of market partitioning into a unifying framework: Glenn Carroll's resource-partitioning and John Sutton's sunk cost theories, respectively. In so doing, two important theory fragments from organizational ecology and industrial organization are integrated in an attempt to understand the antecedents and consequences of so-called dual market structures. A dual market structure features high concentration and high density, two market structure conditions that in most extant theory are thought to be unrelated. We argue that both theory fragments are highly complementary, offering different stories about the evolution of competition that produce similar market structure outcomes. In terms of the competitive strategies and organizational forms involved, however, the accounts of dual market structure evolution in the resource-partitioning and sunk cost theories are very different. This is instrumental in developing a dynamic theory of Porterian strategic management. We use these insights to reinterpret existing evidence, discussing a series of well-known industry studies.