Thinking creatively about markets
P.A Geroski

Paul Andrew Geroski was a leading economist in the United Kingdom. He was particularly interested in innovation, technical change and the determinants of corporate performance. This article, untitled “Thinking creatively about markets”, written in 1998, deals with these subjects, and especially with market structure.

In this paper, Geroski aims at showing the importance of the definition of market boundaries for the corporate strategists to take the right strategic and innovative decisons. He believes that all corporate strategists have specific needs that affect their vision of how the market should be delimited. The market definition has to be in line with those needs.

At first, Geroski discusses two tradionnal visions of the market: “trading markets”, and “anti-trust markets”. “Trading markets” are defined as geographical areas, in which people deal with groups of homogeneous products that obey to the rule of one price. Geroski defines “anti-trust markets” as markets which are dominated by a firm or a group of firms, and where competitivness is serverly controlled. These two market visions seem to be correlated, but Geroski points out some inconsistencies: indeed, if, for example, there was some change in the degree of the market’s competitiveness, would an increase in prices be possible? As Geroski says, “some members of trading market may not be effective members of anti-trust market”… Thus the rule of one price is hardly applicable in presence of an “anti-trust market” in which firms might be able to exert monopoly power.

As those traditionnal market definitions are not satisfactory, Geroski has thought of a third concept of market: A “strategic market”, in line with each company’s needs and goals. In this model, each firm shapes it’s own market, to respond to its strategic objectives and maximize its profits. Indeed, we can’t deny that the nature of the market will influence the firm’s identity, functioning and organizational structure. That’s why the market’s defintion represents a core step in the firm’s strategy and can lead to interesting and important strategic innovation.
But how definy a market?? To be impactful, Geroski stresses that the firm has to follow a hierarchy of decision making: respond to the questions “where?”, “who?”, “at what price?”, “with which kind of advertising?”, “using which retail outlets?”… A firm should ideed “identify people and places, identify needs and functions and focus on supply side factors”.
However, Goroski insists on the fact that there is no right method or way to definy a market. Buzzel said that “a market not only can but should be defined in several different ways”. Nevertheless, Gerosky quotes Kay to highlight two crucial things to respect to be successful when identifying a market: the potential market must be viable (profitable), and the smallest area as possible. That’s why the market boundaries have to reflect not only demand side factors (focus on consumers, people eand place..) but also reflect supply side factors: the firm must carefully analyse the consumers’ behaviors, try to explain their purchases and understand “how these goods and services are made and sold”.
Thus, all those previous studies will allow the company to definy a viable market, which will be in line with its needs and its profit expectations.

This arcticle was very interesting, well organized and well written. And we could confront the theories developped by Geroski to the one developped by Jakorwski, Kohli and Sahay. Indeed, those three authors have launched the theory of “Market driven versus driving market”. According to them, there is two visions of the market structure: on the one hand, the theory of “Market driven” refers to a business orientation that is based on understanding and reacting to the preferences and behavior of players within a given market structure. On the other hand, “Driving markets” implies influencing the structure of the market and the behaviors of market players in a direction that enhances the competitive position of the business. We can notice that Geroski only discusses the second vision, “driving market”. Does that mean that, to his mind, the business units have always to create the market? Aren’t there cases in which the companies have to adapt themselves, have to be in line with existant structure, culture and behaviors, be “market driven”…? Geroski seems to forget the concept of “network” particularly developped by Ford and Hakansson… or maybe it is only theories… ?