Product Differentiation vs. Strategic Imitation
http://marshallinside.usc.edu/Mweinstein/teaching/fbe552/552secure/notes/fads%20paper%20from%20jep.pdf
Traditional economic and business strategy encourages product differentiation, which results in less competition and greater profit for a company. However, this is not often the reality of business strategy in many industries. The mobile phone industry is a perfect example. The introduction of touch screen devices just a few years ago started a new trend, or “fad.” Producers and consumers alike have a growing focus on creating and buying touch screen phones. As technology improves, new features are added. These new features, including the introduction of a larger touch screen, for instance, seem to be adopted by many companies almost simultaneously. It seems as though mobile phone producers are making their products more and more similar. This seems to be contradictory to the theory that differentiation will increase profit margins.
Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades points to information cascades as the cause of this market homogeneity. Bikhchandani, Hirshleifer, and Welch explain that, while market demand and consumer satisfaction are common factors that impact firms’ decisions to produce similar products, there is certainly an information cascade effect taking place. They call this effect “strategic imitation.” They argue that larger companies tend to invest money in areas that their competitors are not – fitting with the strategy of differentiation. However, these large companies become “fashion leaders” – they are viewed as having better information and insight, as they are already successful and have more money to spend on market research. Thus, smaller companies observe the decisions and investments made by the fashion leaders and make similar investments. This is the start of an information cascade and, in turn, the loss of product differentiation.
Very Informative Post I agree with you the Mobile Industry now is One of the Biggest Successful Businesses Industry