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Modern Competitive Analysis (second edition)
By Sharon M. Oster, New York and Oxford, Oxford University Press, 1994. 411 pp.. $39.95.
ECONOMIST and Yale School of Management Professor Sharon Oster offers a new approach to corporate strategic planning in Modern Competitive Analysis. It is the first strategic planning approach based on the analytic tools of microeconomic analysis. Oster offers three themes throughout her book about competitive strategy by an economist: (1) she focuses on the competitive nature of competitive strategy; (2) she emphasizes the importance of creating and managing change in organizations; and (3) she argues that choices involved in developing a strategy are inevitably made in the context of limited information and market frictions.
The first theme, competitive strategy, rests on the theory of efficient markets. Oster establishes the microcompetitive model as the foundation of industry analysis, identifies factors in industry profit differences, and explores the analytical concepts underlying the opportunity costs of capital. Industry analysis, a bulwark of competitive strategy, concentrates on Michael Porter's Five Forces Model of Industry: (1) intensity of competition or rivalry; (2) presence of substitute products; (3) buyer power; (4) power of suppliers; and (5) impediments to market entry. Within impediments to market entry, Oster observes that expectations about strategic price reactions by incumbent firms to entry are affected by the technology of the industry and the competitive reputation of industry incumbents. In addition, regulation and antitrust policy, industry history, and institutional effects on industry profitability complete a comprehensive industry analysis profile.
Strategic groups, an important concept drawn...