The basics of marketing strategy 63
conditionally descriptive. The results indicate
how firms should behave given a set of
assumptions about the alternatives, the payoffs,
and the properties of an ‘optimal’ solution (the
equilibrium). Similarly, game theory results
describe the evolution of competitive strategy,
but only given a specific set of assumptions.
The seemingly unrealistic and simplistic
nature of the competitive reactions incorp-
orated in game theory models and the nature of
the equilibrium concept led some marketers to
question the managerial relevance of these
models (Dolan, 1981). However, all models
involve simplifying assumptions and game
theory models,^3 whilst often highly structured,
underpin most attempts to apply economic
analysis to issues of competition among a
limited number of firms. Indeed, as Goeree and
Holt (2001) observe:
Game theory has finally gained the central role... in some areas of economics (e.g. industrial
organization) virtually all recent developments
are applications of game theory.
(p. 1402)
As discussed above, Industrial Organization
(IO) economics provides one way of extending
basic game theory approaches by examining
the nature of competitive behaviour when
assumptions about homogeneous firms and
customers are relaxed. IO economists, espe-
cially Richard Caves (1980) and Michael Porter
(1981), directed the development of IO theory
to strategic management issues. The concepts
of strategic groups and mobility barriers are
key elements in this new IO perspective. As
Richard Caves (1984) indicates: ‘The concepts
of strategic groups and mobility barriers do not
add up to a tight formal model. Rather, they
serve to organize predictions that come from
tight models and assist in confronting them
with empirical evidence – a dynamised add-on
to the traditional structure–conduct–perform-
ance paradigm.’Evolutionary ecological analogies
Evolutionary ecology has also emerged as a
popular analogy for understanding the types of
market-based strategies pursued by companies
(Coyle, 1986; Lambkin and Day, 1989). These
analogies have been previously used to
describe both the nature of the competitive
process itself (Henderson, 1983) as well as the
notion of ‘niche’ strategy (Hofer and Schendel,
1977). Organizational theorists and sociologists
have adopted an ecological model, describing
the growth of a specie in an ecology, to describe
the types of firms in an environment.r- and k-Strategies
From an ecological perspective, there is an
upper limit on the population of a species in a
resource environment. When the population of
a species is small, the effects of the carrying
capacity are minimal and the growth is an
exponential function of the natural growth rate.
The carrying capacity only becomes important
when the population size is large relative to the
carrying capacity. The parameters of the stand-
ard growth model have been used to describe
two alternative strategies: r-strategies and
k-strategies. r-Strategists enter a new resource
space (product-market space) at an early stage
when few other organizations are present,
while k-strategists join later when there are a
larger number of organizations in the environ-
ment. Once a particular type of organization
has established itself in an environment, it
resists change due to the development of vested
interest within the organization. The number of
firms in an environment at one point in time,
referred to as the population density, is a proxy
for the intensity of competition.
Based on this perspective, the initial
entrants into an environment are usually(^3) A good coverage of game theory approaches is to be
found in Kreps (1990), but as indeed Goeree and Holt (2001)
note, there remain some significant problems with the
predictive power of game theory models when they are
compared with actual behaviour, most obviously in asym-
metric pay-off situations, which raises questions about the
underlying notion of rationality.