Miles A. Zachary
MGT 4380
 Simulation Overview
 Lecture
 Competitive Dynamics
 Competitive Moves
 Cooperative Moves
 Paper/Presentation Overview
 Simulation
 Competitive dynamics is the study of how firm
action (moves) affects competitors, competitive
advantage, and performance
 Includes:
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First-mover advantage
Entrainment
Disruptive innovation
Blue ocean strategy
Footholds
Bricolage
Self-displacement
 First-mover firms enter a market before other firms and
tend to reap distinct benefits
 First-mover advantage results when a first-moving firm is
able to develop a dominant position in a developing market
 First-movers may be able to establish early brand
recognition and build strong customer loyalty
 But, first-mover firms may have trouble establishing a
competitive advantage:
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Lack of institutional environment
High marketing/advertising expenses
Consumers slow to adopt product
Easy imitation
 Entrainment strategy suggests that firms should time
their internal processes with external (environmental)
trends
 Alternative theory to FMA; argues that while firstmoving may be viable in some situations, it is not
always optimal
 Firms looking to entrain should be aware of dominant
external pacers that are likely to direct consumers to
their products
 Ex.-Holiday movies release near their target holiday
Movie revenue through associated holiday
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Movie Revenue
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15000000
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5000000
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Days to associated holiday
Original research from Zachary & Payne
 Rooted in the concept of Schumpeterian innovation
(destructive)
 “[G]ale of creative destruction” – Joseph Schumpeter
 Firms may have an opportunity to disrupt an existing market by
creating a new product/technology
 Competence-destroying innovations-major shift in technology;
destroy existing firm’s product effectiveness
 Competence-enhancing innovations-increase the efficiency of an
existing product or technology
 Firms able to effectively combine FMA and disruptive
innovations are in a unique position to capture competitive
advantages (e.g., Apple’s iPad)
 This is rare as most innovations are not so quickly adopted
 Firms must weigh their effectiveness in the new environment
and whether they can sustain themselves during the slow growth
 A blue ocean strategy attempts to create a new,
untapped market rather than competing with rivals in
an existing market
 Tries to make competition irrelevant
 Firms create new products to reach previously ignored
sets of consumers
 Ex.-Nintendo developed alternative games that appeal to
traditionally non-gaming consumers
 Ex.-Casella wines (Yellowtail) appealed to traditionally
non-wine drinking crowds, creating a new consumer
base
 Footholds are small positions firms intentionally create in
a market in which it does not already compete
 Similar to climbing, firms use strategic footholds to anchor
a new position in a market to exploit
 Can include either geographical positioning or market
positioning
 Footholds may ward off potential competitors by
establishing an early position or staking geographical
claims
 Ex.-Allsups convenient stores build locations in small towns
to establish geographical advantages and discourage other
stores from entering the limited market
 A bricolage strategy describes using available resources in a
unique combination to generate a new product or market
 Bricolage can help firms overcome problems associated
with limited resources
 Successful bricolage can help create strategic resources
 Ex.-Oo-La-Latte’s in Lubbock combined the ideas of a coffee
shop with the sex appeal of Hooter’s
 Ex.-Alamo Brewhouses combine traditional movie theaters
with pub grub and atmosphere
 However, if the resources are widely available to
competitors, imitation may limit the competitive
advantages of bricolage
 Self-displacement involves a leader firm moving aside
and allowing a competitor to occupy a market
leadership position in order to continue to develop
new competitive advantages
 Some scholars suggest that this is likely an optimal
situation for firms as a result of the added costs
associated with increasing the speed of innovation
(time compression diseconomies)
 Only in situations where the innovation has high
competitive value and low market value should a firm
self-renew (speed up innovation)
 Firms must often determine adequate responses to
competitor actions; very difficult to decide
 Likelihood of response is a factor of:
 Awareness
 Motivation
 Capability
 Responding firms must be aware of their competitor’s
actions, motivated to respond, and capable of
mounting a competitive response
 Ex.-Schick introduces Quattro brand => Gillette
preempts move and introduces Sensor 3 and Venus
Devine
 The characteristics of a competitor’s action are
important predictors of competitive response
 Radicality-extent to which an action departs from
existing norms
 Magnitude-amount of resources needed to implement
the action
 Scope-number of competitors affected
 Degree of threat-severity of affect
 Such characteristics predict:
 Response likelihood-p(response)
 Response speed-how fast a firm responds
 Response order-order within industry of response
 Response could also be artifact of a firm’s competitive
repertoire—a firm’s entire set of competitive action
carried out in a given year
 CR simplicity-an overwhelming preoccupation with a
single type of action
 CR non-conformity-tendency for action to depart from
industry norms
 CR inertia-level of activity a firm exhibits when altering
its competitive stance
 The state of a firm’s competitive repertoire may affect
how capable a firm is of responding to competitor
action
 When firms compete in multiple markets, executives must
consider the effects on each market when crafting actions
and responses
 Mutual forbearance occurs when rivals do not act
aggressively because each firm recognizes the other could
retaliate in multiple markets
 Awareness of mutual forbearance can help firms decide if
and when to attack another firm; often, it dissuades firms
from pursuing action
 Ex.-United Airlines announces new routes in notoriously
Southwest Airline’s territory => SW publically announces
counteraction => nothing happened and both firms benefited
 In the event a firm’s action creates a disruptive
innovation (competence-destroying), firms choose
from three (3) general responses
 Ignore the innovation-when firms believe the
interruption is temporary
 Respond on a different dimension-firms may
respond to competitor action by acting on another line
 Match the competitor move-respond directly by
cannibalizing its traditional business; may attract new
customer segments
 When competitors attempt to lure a firm’s customers
away with lower prices, firms may be tempted to lower
prices to compete
 Good idea in the short-run; bad in the long-run
 May be difficult to increase prices in the future
 A fighting brand is a lower-end brand that a firm
introduces to protect the firm’s market share without
damaging an existing brand
 Ex.-GM’s Geo brand competes with inexpensive
Japanese models
 Some fighting brands are short-lived
 Firms can sometimes benefit more by cooperating
rather than competing
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Joint ventures
Strategic alliances
Co-location
Cooptition
 Cooperating firms are able to share resources and lean
on each others’ strengths
 However, some firms lose control over operations,
share valuable secrets, and may be exploited by
partners
 A joint venture is a cooperative arrangement that
involves two or more firms each contributing to the
new entity
 Joint ventures allow firms to capitalize on shared
opportunities and threats
 A strategic alliance involves a cooperative arrangement
between two or more organizations that does NOT
result in the creation of a new entity
 While many industries have strategic alliances, the
pharmaceutical industry has many
 Co-location refers to a situation in which goods and
services offered under different brands are located in
close proximity
 By giving customers with a variety of choices, colocated firms can attract larger customer segments
collectively
 Co-optition highlights a complex interaction that
involves cooperating and competing
 Cooperate early in the value chain
 Compete later in the value chain
 Highlights how firms have different relationships with
other firms
 Customer
 Supplier
 Competitor