Towards a theory of endogenous market structure in strategy : Exploring the endogeneity of demand‐side determinants of firm investment strategy and market structure

Purpose – The thought and rationale of sustainable competitive advantage in strategy are significantly influenced by the Schumpeterian models of dynamic competition in IO and evolutionary economics. Yet, most analytical accounts of sustainable competitive advantage fail to explain how firms' investment choices influence, and are simultaneously influenced by, the co‐evolution of “external” industry competition and “internal” firm competences. This paper aims to contribute to the development of a theory of endogenous market structure in strategy. Design/methodology/approach – Two alternative assumptions are developed – concerning temporally heterogeneous firm investment strategy – that lie central to a proposed behavioral theory of endogenous market structure. Additionally, a theoretical description is provided of the endogeneity of the demand‐side determinants of firm investment strategy and industrial market structure. Finally, guidelines are provided for empirical application of [incorporating] the alternative assumptions and theoretical arguments. Practical implications – It is expected that the theoretical arguments in the paper will influence strategy scholars to develop dynamic models of firm performance that render themselves amenable to sound empirical analyses. Originality/value – The paper contributes towards developing a theory of endogenous market structure in strategy.