Regulation and strategic group dynamics of the Nigerian telecommunications industry

Abstract

Purpose– In order to achieve a desirable level of market efficiency, regulators need to identify the strategic groups within an industry and understand the way the constituent groups relate to one another. The paper aims to discuss these issues.Design/methodology/approach– In the current study, factors that may lead to strategic group formation were developed and used as clustering variables in ak-means cluster statistical analysis to categorize the firms into strategic groups. The factors used are entry costs, timing of entry, technology type and scope of operations. In addition, the number and type of competitive actions employed by the firms in the industry were identified by structured content analysis of a public source. The competitive actions were used to examine the dynamics of the resulting groups within the context of competitive behavior, resource and scope commitments and corporate social responsibility (CSR) actions. In addition,χ2 analysis was employed to ascertain the likelihood that actions of a firm will be responded to by firms from the same group or from outside the group.Findings– License fees was found to be the most significant clustering variable. The study also showed that groups with significantly higher license fees carried out considerably more competitive actions, had higher resource and scope commitments and executed more CSR actions. In addition, the study revealed significantly more competition within strategic groups than between groups.Research limitations/implications– The absence of financial records for firms in the sample necessitated the use of CSR activity as a measure of firm performance. Some empirical studies have shown strong links between CSR and firm performance.Practical implications– The study revealed high mobility barriers which prevent ease of movement of firms in the industry from one strategic group to the other. Therefore regulators who wish to promote competition must do so by identifying the strategic groups with significant market power and permitting entry not by lowering entry barriers but by allowing the entry of firms with proven resources similar to the firms in those groups and to stipulate similar commitments in entry conditions. The results also offer management practitioners an insight into competitive behavior in the industry.Originality/value– The study utilized a unique data set (competitive actions of firms in the Nigerian Telecommunications industry as reported in the media) in contributing to empirical studies on competitive dynamics and strategic group literature.