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Source
International Journal of the Economics of Business, 14, 1, (2007), pp. 135-149ISSN
Publication type
Article / Letter to editor

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Organization
Financiële economie en ondernemingsfinanciering
Journal title
International Journal of the Economics of Business
Volume
vol. 14
Issue
iss. 1
Languages used
English (eng)
Page start
p. 135
Page end
p. 149
Subject
NON-RU research; Onderzoek niet-RUAbstract
In this paper we use a simple linear demand structure to analyze firms’ and alliances’ strategic positioning with regard to cost reduction and product differentiation. In particular, we compare investment decisions under competition and in alliances and analyze comparative static properties concerning changes in market size. In contrast to Porter (1980), this model explicitly allows firms to allocate their budget between the two strategies. The analysis reveals that the optimal allocation of resources for strategic positioning changes markedly when a firm enters an alliance: the general investment level decreases with a shift towards more cost reduction and less product differentiation. Another finding is that alliances (as well as independent firms) in larger markets invest more in both strategies and investment is driven towards product differentiation. These results are in line with Klepper’s (1996) findings as they show that the attractiveness of following cost leadership or differentiation strategies changes through industry evolution.
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