Strategy and interfirm organization: An empirical test

The study investigates the relevance of the firm strategy concept to the explanation of oligopoly behavior in the producer-good process manufacturing industries through an analysis of evidence provided by the Federal Trade Commission's Line of Business database. This database permitted the econometric analysis of profitability at an unusually disaggregated level. Concentration in 1977 (the year characterized by the least amount of macroeconomic turbulence) has a significant positive impact on industry cooperation for industries with an above average level of strategic homogeneity. Concentration, however, has a significant negative impact in industries with below average strategic homogeneity. The novel findings of this study indicate that the strategic homogeneity measure can be used to identify, for producer-goods process manufacturing, those industries where the concentration-cooperation hypothesis is valid and those industries where this hypothesis is contradicted (and not simply not supported) by the evidence. The results also indicate that the strategic homogeneity measures developed for this study provide a better means of sorting than the previous measures (that were designed with reference to the late 1960s). This indicates that the measures developed in this study, besides being more replicable, have been able to capture the strategic changes that occurred in these industries over the early 1970s. The 1977 results, however, offer no support for the importance of strategy variables as explanatory variables in their own right. Moreover, model selection criteria suggest that mean squared error may be reduced by dropping the strategy variables from the model.