DefinitionsDefinitions CompetitorsCompetitors– firms operating in the same market, offering firms operating in the same market, offering
similar products and targeting similar similar products and targeting similar customerscustomers
Competitive rivalryCompetitive rivalry– the ongoing set of competitive actions and the ongoing set of competitive actions and
responses occurring between competitors responses occurring between competitors – competitive rivalry influences an individual competitive rivalry influences an individual
firm’s ability to gain and sustain competitive firm’s ability to gain and sustain competitive advantagesadvantages
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DefinitionsDefinitions Competitive behaviorCompetitive behavior– the set of competitive actions and competitive the set of competitive actions and competitive
responses the firm takes to build or defend its responses the firm takes to build or defend its competitive advantages and to improve its competitive advantages and to improve its market positionmarket position
Competitive dynamicsCompetitive dynamics– the total set of actions and responses taken by the total set of actions and responses taken by
all firms competing within a marketall firms competing within a market
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From Competitors to From Competitors to Competitive DynamicsCompetitive Dynamics
CompetitorsCompetitors
• Through competitiveThrough competitivebehaviorbehavior• Competitive actionsCompetitive actions• Competitive responsesCompetitive responses
• To gain an advantageousTo gain an advantageousmarket positionmarket position
Competitive DynamicsCompetitive Dynamics• Competitive actions and responses taken by allCompetitive actions and responses taken by all
firms competing in a marketfirms competing in a market
CompetitiveCompetitiverivalryrivalry
Engage inEngage in
What results?What results?
What results?What results?
Why?Why?
How?How?
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Effect of Competitive Rivalry on Effect of Competitive Rivalry on a Firm’s Strategies a Firm’s Strategies Success of a strategy is determined by:Success of a strategy is determined by:– the firm’s initial competitive actions the firm’s initial competitive actions – how well it anticipates competitors’ responses how well it anticipates competitors’ responses
to them to them – how well the firm anticipates and responds to how well the firm anticipates and responds to
its competitors’ initial actions its competitors’ initial actions
Competitive rivalryCompetitive rivalry– affects all types of strategies affects all types of strategies
– most dominant influence is on the firm’s most dominant influence is on the firm’s
business-level strategy or strategies.business-level strategy or strategies.
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A Model of Competitive A Model of Competitive RivalryRivalry
Interim RivalryInterim Rivalry• Likelihood of AttackLikelihood of Attack
• First mover incentivesFirst mover incentives• Organizational sizeOrganizational size• QualityQuality
• Likelihood of ResponseLikelihood of Response• Type of competitive actionType of competitive action• ReputationReputation• Market dependenceMarket dependence
Competitive RivalryCompetitive Rivalry Firms are mutually interdependent Firms are mutually interdependent – one firm’s competitive actions have noticeable one firm’s competitive actions have noticeable
effects on competitorseffects on competitors– one firm’s competitive actions elicit one firm’s competitive actions elicit
competitive responses from competitorscompetitive responses from competitors– competitors feel each other’s actions and competitors feel each other’s actions and
responsesresponses
Marketplace success is a function of both Marketplace success is a function of both individual strategies and the individual strategies and the consequences of their useconsequences of their use
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Competitor AnalysisCompetitor Analysis Competitor analysisCompetitor analysis– a technique firms use to understand their a technique firms use to understand their
competitive environment. Along with the competitive environment. Along with the general and industry environments, the general and industry environments, the competitive environment comprises the firm’s competitive environment comprises the firm’s external environmentexternal environment
– a technique used to help the firm a technique used to help the firm understandunderstand its competitorsits competitors
– the first step to being able to the first step to being able to predictpredict competitors’ behavior in the form of its competitors’ behavior in the form of its competitive actions and responsescompetitive actions and responses
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Market CommonalityMarket Commonality Market Commonality is concerned withMarket Commonality is concerned with
– the number of markets with which a firm and a the number of markets with which a firm and a competitor are jointly involvedcompetitor are jointly involved
– the degree of importance of the individual markets the degree of importance of the individual markets to each competitorto each competitor
Most industries’ markets are somewhat related Most industries’ markets are somewhat related in terms ofin terms of– technologiestechnologies– core competenciescore competencies
Multimarket competitionMultimarket competition– Firms competing in several marketsFirms competing in several markets
– the extent to which the firm’s tangible and intangible the extent to which the firm’s tangible and intangible resources are comparable to a competitor’s in terms resources are comparable to a competitor’s in terms of both type and amount of both type and amount
Firms with similar types and amounts of Firms with similar types and amounts of resources are likely toresources are likely to– have similar strengths and weaknesseshave similar strengths and weaknesses
– use similar strategiesuse similar strategies
Assessing resource similarity can be difficult if Assessing resource similarity can be difficult if critical resources are intangible rather than critical resources are intangible rather than tangibletangible
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A Framework of Competitor A Framework of Competitor AnalysisAnalysis
The shaded area represents The shaded area represents degree of market commonality degree of market commonality between two firmsbetween two firms
Resource endowment BResource endowment B
Resource endowment AResource endowment A
KEYKEY
IIIIII
IIIIII IVIV
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Drivers of Competitive Actions Drivers of Competitive Actions and Responses:and Responses:
Awareness is the extent to which Awareness is the extent to which competitors recognize the degree of competitors recognize the degree of their mutual interdependencetheir mutual interdependence– mutual interdependence results mutual interdependence results
AwarenessAwarenessDrivers of competitive behaviorDrivers of competitive behavior
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MotivationMotivation
Drivers of Competitive Actions Drivers of Competitive Actions and Responses:and Responses:
Motivation concerns the firm’s Motivation concerns the firm’s incentiveincentive– to take actionto take action– or to respond to a competitor’s or to respond to a competitor’s
attackattack– and relates to perceived gains and and relates to perceived gains and
losseslosses
AwarenessAwareness
Drivers of competitive behaviorDrivers of competitive behavior
MotivationMotivation
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AbilityAbility
Drivers of Competitive Actions Drivers of Competitive Actions and Responses:and Responses:
Ability relatesAbility relates– to each firm’s resourcesto each firm’s resources– the flexibility these resources the flexibility these resources
provideprovide Without available resources the firm Without available resources the firm
lacks the abilitylacks the ability– to attack a competitor to attack a competitor – to respond to the competitor’s to respond to the competitor’s
actionsactions
AwarenessAwareness
Drivers of competitive behaviorDrivers of competitive behavior
MotivationMotivation
AbilityAbility
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Drivers of Competitive Actions Drivers of Competitive Actions and Responses:and Responses:
A firm is more likely to attack the A firm is more likely to attack the rival with whom it has low market rival with whom it has low market commonality than the one with whom commonality than the one with whom it competes in multiple marketsit competes in multiple markets
Because of the high stakes of Because of the high stakes of competition under the condition of competition under the condition of market commonality, there is a high market commonality, there is a high probability that the attacked firm will probability that the attacked firm will respond to its competitor’s action in respond to its competitor’s action in an effort to protect its position in one an effort to protect its position in one or more marketsor more markets
MarketMarketcommonalitycommonality
Drivers of competitive behavior influenced byDrivers of competitive behavior influenced by
Market CommonalityMarket Commonality
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ResourceResourcesimilaritysimilarity
Drivers of Competitive Actions Drivers of Competitive Actions and Responses:and Responses:
The greater the resource imbalance The greater the resource imbalance between the acting firm and between the acting firm and competitors or potential responders, competitors or potential responders, the greater will be the delay in the greater will be the delay in response by the firm with a resource response by the firm with a resource disadvantagedisadvantage
When facing competitors with greater When facing competitors with greater resources or more attractive market resources or more attractive market positions, firms should eventually positions, firms should eventually respond, no matter how challenging respond, no matter how challenging the responsethe response
Drivers of competitive behavior influenced byDrivers of competitive behavior influenced by
MarketMarketcommonalitycommonality
Resource SimilarityResource Similarity
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Competitive RivalryCompetitive Rivalry Competitive actionCompetitive action– a strategic or tactical action the firm takes to a strategic or tactical action the firm takes to
build or defend its competitive advantages or build or defend its competitive advantages or improve its market positionimprove its market position
Competitive responseCompetitive response– a strategic or tactical action the firm takes to a strategic or tactical action the firm takes to
counter the effects of a competitor’s counter the effects of a competitor’s competitive actioncompetitive action
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Strategic and Tactical ActionsStrategic and Tactical Actions Strategic action or a strategic responseStrategic action or a strategic response– a market-based move that involves a a market-based move that involves a
significant commitment of organizational significant commitment of organizational resources and is difficult to implement and resources and is difficult to implement and reversereverse
Tactical action or a tactical responseTactical action or a tactical response– market-based move that is taken to fine-tune a market-based move that is taken to fine-tune a
strategy; it involves fewer resources and is strategy; it involves fewer resources and is relatively easy to implement and reverserelatively easy to implement and reverse
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Factors Affecting Likelihood of Factors Affecting Likelihood of ResponseResponse
Firms study three factors to predict how a Firms study three factors to predict how a competitor is likely to respond to competitor is likely to respond to competitive actionscompetitive actions– type of competitive actiontype of competitive action– reputationreputation– market dependencemarket dependence
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Firm BFirm BFirm Firm AA
Strategic Conduct is DynamicStrategic Conduct is Dynamic
• Actions taken by one firm elicits Actions taken by one firm elicits responses from competitorsresponses from competitors
• Competitive responses lead to additional Competitive responses lead to additional actions from the firm that acted actions from the firm that acted originallyoriginally
ActionsActions
ResponseResponse
New ActionsNew Actions
New ResponseNew Response
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Obtaining Temporary Advantages to Obtaining Temporary Advantages to Create Sustained AdvantageCreate Sustained Advantage
Ret
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Ser
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Ret
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Ser
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Rep
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Time (Years)Time (Years)00 55 1010 1515
LaunchLaunch
ExploitationExploitation
CounterattackCounterattack
Firm has already moved Firm has already moved to next advantageto next advantage
