Definitions
• Competitors
– firms operating in the same market,
offering similar products and targeting
similar customers
• Competitive rivalry
– the ongoing set of competitive actions and
responses occurring between competitors
– rivalry affects a firm’s ability to gain and
sustain competitive advantages
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Definitions
• Competitive behavior
– the actions and responses the firm takes to build
or defend its competitive advantages and to
increase market power
• Competitive dynamics
– the total of actions and responses taken by all
firms competing within a market
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From Competitors to
Competitive Dynamics
Competitors
Engage in
Why?
Competitive
rivalry
What results?
How?
• To gain improved
market position/power
• Through competitive
behavior
• actions
• responses
What results?
Competitive Dynamics
• Competitive actions and responses taken by all
firms competing in a market
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Effect of Competitive Rivalry
on a Firm’s Strategies
• Success of a competitive move is determined by:
– the firm’s initial competitive actions
– how well the firm anticipates competitors’ responses
– how well the firm responds to its competitors’ initial
actions
• Competitive rivalry
– affects all types of strategies
– most dominant influence is on the firm’s business-level
strategy or strategies.
– Is primarily concerned with capabilities/resources
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Model of Competitive Rivalry
Competitive Analysis
feedback
• Market commonality
• Resource similarity
Drivers of Competitive
Behavior
• Awareness
• Motivation
• Ability
Outcomes
• Market position
• Financial performance
Interim Rivalry
• Likelihood of Attack
• First mover incentives
• Organizational size
• Quality
• Likelihood of Response
• Type of competitive action
• Reputation
• Market dependence 5
Competitive Rivalry
• Firms are mutually interdependent
– one firm’s competitive actions have noticeable effects
on competitors
– one firm’s competitive actions elicit competitive
responses from competitors
– competitors feel each other’s actions and responses
• Success depends on individual strategies
(deployment of capabilities/resources)
and the consequences of their use
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Competitor Analysis
• Competitor analysis
– a technique firms use to understand their competitive
environment – think of competitive environment as
the industry and general environments in motion.
– a technique used to help the firm identigy/understand
its competitors
– the first step in predicting competitors’ behavior
(competitive actions and responses)
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Market Commonality
• Market Commonality is concerned with
– the number of markets with which a firm and a
competitor are jointly involved
– the degree of importance of the individual markets to
each competitor
• Industries’ markets are related in terms of
– technologies
– core competencies
• Multimarket competition
– Firms competing in several overlapping markets
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Resource Similarity
• Resource similarity
– How comparable are the resources deployed by a firm
and the resources deployed by that firm’s competitors (in
both type and amount)?
• Firms with similar types/amounts of resources are
likely to:
– have similar strengths and weaknesses
– use similar strategies (deploy resources in the same way)
• Assessing resource similarity can be difficult if
critical resources are intangible rather than tangible
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A Framework of Competitor
Analysis
High
KEY
II I
III IV
Market
Commonality
Low
The shaded area represents
degree of market
commonality between two
firms
Resource endowment A
Low
Resource
Similarity
High
Resource endowment B
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Source: J. McGill 2005 Tech Knowledge & Alliances Among Competitors, Int’l Journal of
Technology Management
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Drivers of Competitive Behavior
Awareness
• Awareness is the extent to which
competitors recognize the degree of
their mutual interdependence
– mutual interdependence results from
• market commonality
• resource similarity
• current & future!
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Drivers of Competitive Behavior
Awareness
Motivation
• Motivation concerns the firm’s incentive
– to take action
– or to respond to a competitor’s
attack
– and relates to perceived gains and
losses
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Drivers of Competitive Behavior
Awareness
Motivation
Ability
• Ability relates
– to each firm’s resources
– the flexibility these resources provide
• Without available resources the firm
lacks the ability
– to attack a competitor
– to respond to the competitor’s
actions
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Drivers of Competitive Behavior
Market
commonality
• A firm is more likely to attack the
rival with whom it has low market
commonality than the one with
whom it competes in multiple
markets
• Because of the potential loss of
market power under market
commonality, there is a high
probability that the attacked firm
will respond to its competitor’s
action to protect its position
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Drivers of Competitive Behavior
Market
commonality
Resource
similarity
• The greater the resource imbalance
between the acting firm and
competitors, the greater the delay in
response by the firm with a resource
disadvantage
• So, when facing competitors with
greater resources or more attractive
market positions, firms should
eventually respond, no matter how
challenging the response
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Strategic and Tactical Actions
• Strategic action or a strategic response
– a market-based move that involves a significant
commitment of organizational resources and is
difficult to implement and reverse
• Tactical action or a tactical response
– market-based move that is taken to fine-tune a
strategy; it involves fewer resources and is
relatively easy to implement and reverse
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Likelihood of Attack:
First mover
incentives
• First movers’ resources
– product innovation and development
– aggressive advertising
– R&D
• First movers can gain
– customer loyalty
– Network effects market share that
can be difficult for competitors to take
during future competitive rivalry
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Likelihood of Attack:
First mover
incentives
Size
• Small firms are more likely
– to launch competitive actions
– to be quicker in doing so
• Small firms – nimble and flexible
– use speed and surprise to defend
their competitive advantages or
develop new ones
– Potentially launch a greater variety of
competitive actions
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Likelihood of Attack:
First mover
incentives
Size
• Large firms are likely to initiate
more strategic & tactical actions
• Large firms often have slack
resources required to launch a
larger number of total competitive
actions
“Think and act big and we’ll get smaller. Think and
act small and we’ll get bigger.”
- Herb Kelleher,
Former CEO, Southwest Airlines
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Likelihood of Response
• Firms study three factors to predict how a
competitor is likely to respond to competitive
actions
– type of competitive action
– reputation
– market dependence
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Likelihood of Response:
Type of
competitive
action
• Strategic actions receive strategic
responses
• Tactical responses are taken to counter
the effects of tactical actions
• Strategic actions elicit fewer total
competitive responses
• A competitor likely will respond quickly
to a tactical action
• The time needed to implement and
assess a strategic action delays
competitors’ responses
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Likelihood of Response:
Type of
competitive
action
Reputation
• An actor is the firm taking an action or
response
• Reputation is the positive or negative
attribute ascribed by one rival to another
based on past competitive behavior
• The firm studies responses that a
competitor has taken previously when
attacked to predict likely responses
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Likelihood of Response:
Type of
competitive
action
Reputation
Market
dependence
• Market dependence is
– the extent to which a firm’s revenues
or profits are derived from a
particular market
• Firms can assume that competitors with
high market dependence are likely to
respond strongly to attacks threatening
their market position
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Competitive Dynamics:
Slow-cycle
markets
• Slow-cycle markets
– the firm’s competitive advantages are
shielded from imitation for long
periods of time
– imitation is costly
• Competitive advantages are sustainable
in slow-cycle markets
• A proprietary, one-of-a-kind competitive
advantage leads to competitive success
in a slow-cycle market
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Returns from a
Sustainable Competitive
Advantage
Gradual Erosion of a Sustainable
Competitive Advantage
Exploitation
Counterattack
Launch
0
5
Time (Years)
10
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Competitive Dynamics:
Slow-cycle
markets
Fast-cycle
markets
• Fast-cycle markets
– the firm’s competitive advantages
aren’t shielded from imitation
– imitation happens quickly and
somewhat inexpensively
• Competitive advantages aren’t
sustainable
• Competitors use reverse engineering to
quickly imitate or improve on the firm’s
products
• Non-proprietary technology is diffused
rapidly
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Obtaining Temporary Advantages to
Create Sustained Advantage
Returns from a
Series of Replicable
Actions
Firm has already
Exploitation moved to next
advantage
Launch
Counterattack
0
5
10
Time (Years)
15
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Competitive Dynamics:
Slow-cycle
markets
Fast-cycle
markets
Standard-cycle
markets
• Standard-cycle markets
– the firm’s competitive advantages
may be shielded from imitation
– imitation is moderately costly
• Competitive advantages are partially
sustainable if the firm is able to
continuously upgrade the quality of its
competitive advantages
• Firms
– seek large market shares
– gain customer loyalty through brand
names
– carefully control operations
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