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Ltrn Mjiuniifi~1M8 V JL\/II International THE EFFECTS OF PIONEER FIRM PRICE STRATEGY ON MARKET CONCENTRATION AND FIRM PERFORMANCE (STRUCTURE, SHARE, PROFITABILITY, INNOVATION). Item Type text; Dissertation-Reproduction (electronic) Authors REDMOND, WILLIAM HILES. Publisher The University of Arizona. Rights Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author. Download date 26/09/2021 11:50:41 Link to Item http://hdl.handle.net/10150/188127 INFORMATION TO USERS This reproduction was made from a copy of a manuscript sent to us for publication and microfilming. While the most advanced technology has been used to pho­ tograph and reproduce this manuscript. the quality of the reproduction is heavily dependent upon the quality of the material submitted. Pages in any manuscript may have indistinct print. In all cases the best available copy has been filmed. The following explanation of techniques is provided to help clarify notations which may appear on this reproduction. 1. Manuscripts may not always be complete. When it is not possible to obtain missing pages. a note appears to indicate this. 2. When copyrighted materials are removed from the manuscript. a note ap­ pears to indicate this. 3. Oversize materials (maps. drawings. and charts) are photographed by sec­ tioning the original. beginning at the upper left hand comer and continu­ ing from left to right in equal sections with small overlaps. Each oversize page is also filmed as one exposure and is available. for an additional charge. as a standard 35mm slide or in black and white paper format. • 4. Most photographs reproduce acceptably on positive microfilm or micro­ fiche but lack clarity on xerographic copies made from the microfilm. For an additional charge. all photographs are available in black and white standard 35mm slide format. • *For more information about black and white slides or enlarged paper reproductions. please contact the Dissertations Customer Services Department. lTrn MJIUniifi~1m8 V JL\/II International 8603347 Redmond, William Hiles THE EFFECTS OF PIONEER FIRM PRICE STRATEGY ON MARKET CONCENTRATION AND FIRM PERFORMANCE The University of Arizona PH.D. 1985 University Microfilms International 300 N. Zeeb Road, Ann Arbor, MI48106 Copyright 1985 by Redmond, William Hiles All Rights Reserved THE EFFECTS OF PIONEER FI~M PRICE STRATEGY ON M~RKET CONCENTRATION AND FI~M PERFORMANCE by William Hiles Redmond A Dissertation Sub~itted to the F~culty of the DEPARTM8NT OF MARKETING In Partial Fulfillment of the Requirements For the Degree of DOCTOR OF PHILOSOPHY In the Gr~duate Col18~e THE UNIVERSITY OF ARIZONA 198 5 Copyright 1985 William qiles Re~~ond THE UNIVERSITY OF ARIZONA GRADUATE COLLEGE As members of the Final Examination Committee, we certify that we have read the dissertation prepared by William Hiles Redmond ----~~~~~~~~~~-------------------- entitled __________Th__ e __ E_f_f_e_c_t_s_o_f __ P_i_o_n~e~e~r __ F~i~rm~P~r~i~ce~~S~t~r~a-teqy~~o~n~Ma==r~k-e_t __ __ Concentration and Firm Performance and recommend that it be accepted as fulfilling the dissertation requirement for the Degree of ________Doc~~t~o_r __ o_f __ Ph==il=o_s_o~p=h~Y----------------------------- Date Date / . Date cj ·Q u (_ -;>??-cz--7'3. Date Date I 1 Final approval and acceptance of this dissertation is contingent upon the candidate's submission of the final copy of the dissertation to the Graduate College. I hereby certify that I have read this dissertation prepared under my direction and recommend that it be accepted as fulfilling the dissertation Date STAT8~8NT BY AUfHOR This dissertation has been submitted in partial fulfillment of requirements for an advanced degree at the University of Arizona and is deposited in the University Library to be made available to borrowers under rules of the Library. Brief quotations from this dissertation are allowable with0ut special permission, provideo that accurate acknowl­ edge~ent of source is made. Requests for permission for extended quotation from or reproduction of this manuscript in whole or in part may be granted by the copyright holder. SIGNED: ACKNOWLEDG8MENTS The author is deeply grateful for the encourage~ent, support and guidance provided by his dissertation direc~or, Professor Lyman Ostlund. Dr. Ostlund's insights and observations have shaped the author's thinking in all areas of marketing strategy, including thi8 research. The author also wishes to acknowledge the considerable contributions of Professors William Black, James Logan and Joseph Newman, without whose advice this dissertation would be a substantially poorer work. iii TABLE OF CONTENTS Page LIST OF TABLES vi LIST OF ILLUSTRATIONS vii ABSTRACT viii 1. INTRODUCTION 1 Focus 2 Background 3 Strategy and Pioneers 4 Related Literatures 6 Product Life Cycle 6 Price Determination • 9 Barriers to Entry • 11 Summary 14 2. STRATEGY AND STRUCTURE 15 Hypotheses 19 Discussion 22 3. STRATEGY AND PERFORMANCE 23 Summary 28 fiypotheses 29 Discussion 30 4. DATA 32 Variables 34 Data Screening 40 Data Preparation 44 Representativeness 46 Discussion 54 Advantages 54 Limitations 55 iv v TABLE O~ CONTENTS -- Continued Page 5. DATA ANALYSIS . 57 Market Concentration • • • • • • • •• 58 Testing for Group Differences •• 59 Curve Fitting •••••••••• 64 Summary •• • • • • • • • • • •• 72 Pioneer Firm Performance •••••• 73 Testing of Market Share Differences ••• • • • • • •• 74 Testing of Relative Profits Differences •• • • • • • • •• 77 Analysis of Performance ••• •• 80 Group Performance ••• • • • •• 85 Summary ••••• • • • • • • •• 90 Discussion ••••••••••••• 92 6. CONCLUSIONS . • • 98 ~indings ••••••••••••• 98 Contribution •••••••••••• 104 ~urther Research • •••••••• 107 Strategy-Structure ••••••• 107 Stiategy-Performance •••••• 108 APPENDIX .1\: ~IRM/INDUSTRY .1\BSTRACTS • · . 110 .1\PPENDIX B: .1\DDITIONAL" ANALYSES • • • 144 REti'ERENCES • . 149 LIST OF TABLES Table Page 1. Penetration Pricers • · . 42 2. Price Skimmers • • c • • • • • • • • • • • 43 3. Means for Key Variables · . 47 4. Codings for Variables · . 48 5. Sectors of the Economy . • • 51 6. Growth Sectors of the Economy •••••• 52 7. Excluded Cases •• • • • • • • • • •• 53 8. 8arly Growth Models • · . 61 9. Early Growth Effects · . 62 10. Late Growth ~odels . · . • • 65 11. Late Growth Effects · . · . · . 66 12. Curve Fitting Results . 71 13. Market Share Models · . · . 75 14. Market Share Effects • • • • e • • • e • • 76 15. Operating Profit ~odels · . .. ... 78 16. Operating Profit Effects · . 79 17. Mar1<et Shares . · . 81 18. Relative Operating Profits . 82 19. Performance by Product Type .. .. 86 20. Performance by Market Size · . 87 21. Performance by Industry Group · . 88 vi LIST OF ILLUSTRATIONS Figure Page 1. Penetration Pricing . • • • • • • e • 21 2. Price Skimming • • • • • • y • • 21 3. Penetration Pricers: Observed Concentrations 68 4. Price Skimmers: Observed Concentrations 69 vii ABSTRACT The research examines linkages between firm strategy and market structure and also between firm strategy and firm performance. To evaluate these linkages, the research focuses on the initial price strategy o~ market pioneer firms, changes in market concentration, and subsequent firm achievements in the area of market share and profitability. Drawing from previous research in the areas of marketing strategy, corporate strategy and industrial organization, arguments are developed supporting the notion of different structural and performance outcomes resulting from different pioneer firm price strategies. These strategies are penetration pricing and price skimming. A sample of pioneer firms/pioneered industries was obtained from published sources and examined for significant differences between the penetration price group and the price skimming group. Price strategy was found to have a significant impact on changes in market concentration as well as pioneer firm market share and profitability. viii CHAPTER 1 INTRODUCTION The research reported here is concerned with long run effects of strategic decisions. The strategic decisions of interest are the pricing strategies of market innovators. The long run effects of interest are of two distinct kinds: (1) industry level effects and (2) firm level effects. As such, the hypotheses are divided in Chapters 2 and 3. Chapter 2 deals exclusively with the relation between pioneer firm initial price strategy and subsequent effects on industry structure, as reflected in industry concentration. Chapter 3 deals exclusively with the relation between pioneer firm initial price strategy and pioneer firm performance, as reflected in market share and profitability. That is, the independent variable (price strategy) remains the same while the dependent variables (industry structure and firm performance) change between the two chapters. T~e research design is in the form of a two-group analysis. Initial price strategy is classified as either penetration pricing or price skimming; the analysi's seeks 1 2 to determine whether there are significant differences in the dependent variables between the two strategic groups. Tl~o comments regarding the research require emphasis. First, the thrust of,research is in the area of firm strategy, not in the area of setting particular prices for particular products. Thus, the research relates strongly to strategy literatures and only weakly to pricing literatures. Second,
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