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Faculty of Economics

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Ritz, R.

Strategic investment, multimarket interaction and competitive advantage: An application to the natural gas industry

CWPE1603

Abstract: This paper presents a game-theoretic analysis of multimarket competition with strategic capacity investments, motivated by recent developments in international natural gas markets. It studies the competitive implications of heterogeneity in firm structure arising from asset specificity. A single-market focus confers advantage even in the absence of superior value or cost. Lower costs and a sharper organizational focus are self-enforcing in generating competitive advantage. This establishes a novel connection between two of Porter’s “generic strategies”. The model speaks to competition between pipeline gas and liquefied natural gas (LNG) and the global impacts of the Fukushima nuclear accident.

Keywords: Competitive advantage, strategic commitment, generic strategies, cost pass-through, value capture

Author links: Robert Ritz  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1603.pdf

Open Access Link: https://doi.org/10.17863/CAM.5697