Firms in one industry cluster into groups pursuing similar strategies, and barriers between groups are often higher than barriers into the industry.
The concept explains why industry-level analysis misleads: rivalry is concentrated within groups, and the difficulty for a firm is usually not entering the industry but moving between positions in it. The barriers are the accumulated commitments of the current position, which is why firms tend to compete hardest with those most like them.
In practice
- A budget airline and a flag carrier share an industry and barely compete, while two budget airlines fight over a route.
- A firm trying to move upmarket finds its cost base, brand and staff all built for where it was.