Competitive Market Structure Analysis: A Comment on Problems

Abstract

D etermination of market definition and structure are topics which have sparked considerable interest among marketing analysts in recent years, resulting in numerous methodological approaches designed to aid managers in developing a better understanding of the markets their products serve or hope to serve (see Day, Shocker, and Srivastava 1979; Urban and Hauser 1980; and Bourgeois, Haines, and Sommers 1981 for descriptions of such methods and for excellent literature summaries and critiques). This proliferation of interest has at least two distinct interpretations-that the area is an important one, influencing decisions of considerable strategic and tactical consequence to the firm, and that no one has yet evolved a totally satisfactory approach to these problems. Day et al. (1979) concluded that market definition is inevitably arbitrary and that methods for defining markets should consequently be much affected by the managerial purposes they are designed to serve. Much of the work which has followed has made useful progress and has become increasingly sophisticated in handling the vagaries involved in the related problems of determining both market definition and market structure. Nevertheless, published approaches to determining market structure have generally attacked only pieces of the problem; each has exhibited certain weaknesses that researchers continue to find exceedingly difficult to eliminate. In particular, we contend that a comprehensive method of market structure analysis is one which possesses, at a minimum: 1. A means for specifying the appropriate set of products for analysis-or, alternatively, for producing consistent results regardless of the set of products employed. For example, if powdered drink mixes were added to the set of soft drink products, there would already be a universal or global structure to the market. Each particular subset of products should produce a unique structure. The structure of a market-i.e., the relationships among any subset of existing products at a given time-should not be altered by the addition of other products, since the representation is supposedly descriptive. (Addition of unique products over time may of course alter future market structures.)