DO STRATEGIC GROUPS EXIST - AN ECONOMIC FRAMEWORK FOR ANALYSIS

This paper offers a framework and methodology for resolving the questi on regarding the existence of strategic groups. We say that a strategi c group exists if characteristics of the group affect firm performance independently of firm-level and industry-level effects. We argue that group-level effects are a byproduct of strategic interactions among m embers, and develop an empirical testing model, based on the 'New Econ omics of Industrial Organization,' to distinguish true group effects f rom spurious effects. From this model, we derive a series of logically consistent propositions, suggesting that while strategic interactions are critical for a group-level effect on profits, mobility barriers a ve necessary to preserve both groups and their effects over time. A re view of prior empirical studies of strategic groups suggests that the inconclusive nature of prior research has been due more to the lack of a theoretical foundation for empirical analysis than to the nonexiste nce of groups. To the extent that our methods have been employed, ther e is limited evidence that a rigorous search for strategic groups may prove fruitful. (C) 1998 John Wiley & Sons, Ltd.