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AN INSIGHTFUL AND CONVENIENT APPROACH TO FIRMS' ANALYSIS
A firm's competitive behavior is an important topic for practitioners, theorists, and policy makers. Among the explanations of firms' behavior is Michael Porter's model. We have presented this model along with some alternative approaches: Structure-Conduct-Performance, the New Industrial Organization and Game Theory, the Resource-Based Perspective, and Market Process Economics. These approaches are discussed in terms of their relations, similarities, and differences relative to Porter's model. In our comparative discussion, we support the use of Porter's model to evaluate firms' competitive behavior. Our reasons for this support are this model's popularity, well-defined structure, feasibility, clarity, simplicity, generality, and its complementarity to two other main approaches. We find the Porter model to be a convenient approach to the firm's competitive advantage and strategy.
How firms compete and what strategies they choose are important questions for the economy. Sound answers to such questions help explain individual firms' successful and unsuccessful competitive moves and positions and further the understanding of the causes of better and worse performance. Improved understanding of firms' competitiveness would also serve as input to improve policies concerning competition and related issues; and improved policies will, in turn, provide valuable support to efforts to continuously develop markets and businesses. Finally, at a more aggregate level, this understanding can also serve for informed comparisons in domestic as well as international contexts by better assessing firms' competitive behavior across different industries or countries.
Given the importance of competition, an important strand of the literature has focused on the identification of the most successful competitive strategies that firms pursue. A well-known framework within this literature, especially among business strategists and industrial economists, is Porter's model (1980, 1998, and 2004). This approach, presented in section 1, is the focus of our discussion in this article. Porter proposes that if firms pursue any of his three recommended generic competitive strategies they will be able to outperform competitors who do not pursue such strategies.
The recommended strategies are "lower cost" or "cost leadership," "differentiation," and "focus;" and "focus" can be found in three variants-"cost focus," "differentiation focus," or "cost and differentiation focus." In section 1, four other approaches-Structure-Conduct-Performance, New Industrial Organization and Game Theory, Resource-Based Perspective, and Market Process Economics-are also briefly...