Chapter 5 Study Gu!de: Compet!t!ve R!
valry &
Compet!t!ve Dynam!cs
Organ!zed as WHAT → WHY → HOW (memor!ze th!s pattern for exams)
BUZZWORDS / KEY BUSINESS TERMS (memor!ze these
f!rst)
Term One-l!ne Def!n!t!on
Compet!tors F!rms !n the same market, s!m!lar products, s!m!lar customers
Ongo!ng act!ons/responses between compet!tors for market
Compet!t!ve R!valry
pos!t!on
Compet!t!ve Behav!or The set of act!ons & responses ONE f!rm takes
Compet!t!ve Dynam!cs ALL act!ons & responses of ALL f!rms !n a market
Mult!market
F!rms compete aga!nst each other !n several markets at once
Compet!t!on
Market Commonal!ty # of markets two f!rms share + !mportance of each
Resource S!m!lar!ty How al!ke two f!rms’ resources are (type & amount)
Awareness F!rm recogn!zes mutual !nterdependence w!th a r!val
Mot!vat!on Incent!ve to attack/respond (perce!ved ga!n vs. loss)
Ab!l!ty Resources & flex!b!l!ty to actually attack/respond
F!rst Mover F!rst to take a compet!t!ve act!on
Second Mover Responds qu!ckly, !m!tates & !mproves on f!rst mover
Late Mover Responds long after — usually weak performer
Slack (Organ!zat!onal
Slack) Unused/excess resources ava!lable for new act!ons
Strateg!c
B!g comm!tment, hard to reverse (e.g., enter!ng new market)
Act!on/Response
Tact!cal
Small, fast, revers!ble (e.g., pr!ce change)
Act!on/Response
Actor’s Reputat!on Pos!t!ve/negat!ve label based on past compet!t!ve behav!or
Market Dependence How much a f!rm rel!es on ONE market for revenue/prof!t
Slow-Cycle Market Advantage protected long-term (patents, copyr!ghts)
Fast-Cycle Market Advantage cop!ed fast & cheap (tech, PCs)
Standard-Cycle Market M!ddle ground — mass market, econom!es of scale (soda, cars)
Meet!ng/exceed!ng customer expectat!ons — necessary but not
Qual!ty
suff!c!ent
Compet!tors & Compet!t!ve R!valry (the B!g P!cture)
WHAT: Compet!tors = f!rms !n the same market, s!m!lar products/customers. Compet!t!ve
R!valry = the back-and-forth of act!ons & responses between them. Compet!t!ve Behav!or
(f!rm level) → adds up to → Compet!t!ve Dynam!cs (market level).
WHY !t matters: 80–90% of new f!rms fa!l. How a f!rm handles r!valry d!rectly determ!nes
whether !t earns above-average returns. Intens!f!ed r!valry = lower average !ndustry
prof!tab!l!ty.
HOW !t works (the flow): Competitors → engage !n → Competitive Rivalry (v!a
compet!t!ve behav!or: act!ons + responses) → produces → Competitive Dynamics (market-
w!de pattern)
Memory hook: Southwest A!rl!nes = the poster ch!ld. It doesn’t just cut costs — !t
blends cost leadersh!p + d!fferent!at!on (great serv!ce), forc!ng r!vals to “change or d!e.”
Compet!tor Analys!s: The Two Bu!ld!ng Blocks
Market Commonal!ty
WHAT: The number of markets a f!rm shares w!th a r!val, and how !mportant each !s. WHY:
More shared markets = h!gher stakes = f!rms watch each other more closely. HOW: F!rms
compare where they compete (geography, segments, products) → map overlap.
Resource S!m!lar!ty
WHAT: How al!ke two f!rms’ tang!ble/!ntang!ble resources are (type & amount). WHY:
S!m!lar resources → s!m!lar strengths/weaknesses → s!m!lar strateg!c opt!ons → pred!ctable
r!valry. HOW: Compare cap!tal, technology, brand, talent, patents, etc.
The 2x2 Matr!x (F!gure 5.3) — memor!ze th!s:
H!gh Commonal!ty + H!gh S!m!lar!ty (Quadrant I) → D!rect, mutually acknowledged
compet!tors (Sony vs. Tosh!ba)
Low/Low (Quadrant III) → Not real compet!tors
Toyota vs. GM = dr!ft!ng from Quadrant I toward II as the!r resources d!verge
Dr!vers of Compet!t!ve Behav!or: AMA Framework
WHAT: Three cond!t!ons that must ex!st before a f!rm acts or responds:
Dr!ver Def!n!t!on Example
Recogn!z!ng mutual
Awareness All a!rl!nes know Southwest !s a r!val
!nterdependence
Incent!ve based on perce!ved Won’t respond !f pos!t!on !sn’t
Mot!vat!on
ga!n/loss threatened
Ab!l!ty Resources + flex!b!l!ty to act No cash = no ab!l!ty, even !f mot!vated
WHY: W!thout all three, a f!rm won’t act — even a f!rm that “should” respond may not, !f !t
lacks ab!l!ty (e.g., resource-d!sadvantaged local reta!lers vs. Wal-Mart).
HOW to use !t: To pred!ct a r!val’s next move, check all three boxes — Aware? Mot!vated?
Able? If yes to all three → expect act!on/response.
Memory hook: AMA = Are you Aware, Mot!vated, and Able?
L!kel!hood of ATTACK — 3 Factors
WHAT dr!ves a f!rm to str!ke f!rst?
a) F!rst-Mover Incent!ves
F!rst mover: acts f!rst → ga!ns customer loyalty, market share, 5–10x valuat!on !n fast-
cycle markets, BUT h!gh r!sk & cost
Second mover: !m!tates fast, avo!ds f!rst mover’s m!stakes, more eff!c!ent
Late mover: responds too late → usually a weak performer
WHY: F!rst-mover advantage requ!res slack (spare resources) to fund R&D & market!ng
HOW: Pred!ct compet!tor behav!or by check!ng !f they have slack resources (e.g.,
ExxonMob!l’s cash p!le !n 2005 → pred!cted aggress!ve f!rst-mover moves)
b) Organ!zat!onal S!ze
Small f!rms → fewer resources, but MORE VARIETY & speed (n!mble, surpr!s!ng)
Large f!rms → MORE VOLUME of act!ons, but less var!ety (pred!ctable)
Ideal f!rm: b!g f!rm’s resources + small f!rm’s flex!b!l!ty
Herb Kelleher (Southwest): “Th!nk and act b!g and we’ll get smaller. Th!nk and act
small and we’ll get b!gger.”
c) Qual!ty
WHAT: Meet!ng/exceed!ng customer expectat!ons (product & serv!ce d!mens!ons — see
Table 5.1)
WHY: Necessary but NOT suff!c!ent for advantage — !t’s the entry t!cket, not the pr!ze
HOW: Poor qual!ty → f!rm won’t attack unt!l f!xed (see Hyunda! case: f!xed qual!ty
1999→2003, THEN became aggress!ve)
L!kel!hood of RESPONSE — 3 Factors
WHAT makes a r!val respond to YOUR act!on?
Factor Log!c
Type of Strateg!c act!ons → fewer, slower, strateg!c responses. Tact!cal act!ons →
Act!on fast, frequent tact!cal responses (e.g., !nstant pr!ce-match!ng)
Actor’s Market leaders get !m!tated fast. “Pr!ce predators” get !gnored (lack
Reputat!on cred!b!l!ty)
Market H!gh dependence on that one market → strong, fast response. D!vers!f!ed
Dependence f!rms → weaker response
WHY: These let you pred!ct not just IF a r!val responds, but HOW FAST and HOW
STRONGLY.
HOW: Real example — Boe!ng vs. A!rbus (A!r Force tanker contract): both are hugely
market-dependent on aerospace → guaranteed f!erce compet!t!on.
Compet!t!ve Dynam!cs: The Three Market Cycles
WHAT determ!nes whether an advantage lasts? → Speed & cost of !m!tat!on.
Market Im!tat!on Real
Susta!nab!l!ty F!rm Strategy
Type Speed/Cost Example
D!sney
Slow & costly (M!ckey
Slow- (patents, Long-last!ng Protect, ma!nta!n, Mouse),
Cycle copyr!ghts, un!que advantage extend Pf!zer
h!story) (L!p!tor
patent)
Fast & cheap Cann!bal!ze your
PC !ndustry,
Fast- (reverse NOT own product before
Dell vs. HP
Cycle eng!neer!ng, easy susta!nable r!vals !m!tate !t —
vs. IBM
tech d!ffus!on) keep !nnovat!ng
Chase econom!es of
Standard- Part!ally Coca-Cola
Moderate scale, market share,
Cycle susta!nable vs. Peps!Co
brand loyalty
WHY th!s matters: Strategy MUST match the market type. Protect!ng a fast-cycle product
l!ke !t’s slow-cycle = death (you’ll get !m!tated before you prof!t). Constantly !nnovat!ng !n a
slow-cycle market = wasted resources.
HOW to remember the v!sual pattern (F!gures 5.4 & 5.5):
Slow-cycle = Launch → Explo!t (long) → Counterattack (rare, late)
Fast-cycle = Launch → Explo!t (short) → Counterattack (fast) → Launch AGAIN
(repeat cycle)
Memory hook:
Slow-cycle = Turtle (D!sney, Pf!zer — protected by law, moves slow, lasts long)
Fast-cycle = Rabb!t (PCs — spr!nt, get cop!ed !mmed!ately, must spr!nt aga!n)
Standard-cycle = Deer/Herd an!mal (Coke/Peps! — mass market, safety !n scale &
brand)
THE FULL MODEL (F!gure 5.2) — Exam D!agram to
Reproduce
Competitive Analysis (Market Commonality + Resource Similarity)
↓
Drivers of Competitive Behavior (Awareness + Motivation + Ability)
↓
Interfirm Rivalry
• Likelihood of Attack (First-mover incentives, Org. size, Quality)
• Likelihood of Response (Type of action, Reputation, Market dependence)
↓
Outcomes (Market Position + Financial Performance)
↓
→ Feedback loop back to top
Qu!ck-F!re Exam Answers (Rev!ew Quest!ons Recap)
1. Who are compet!tors? Same market, s!m!lar products/customers.
2. Market commonal!ty vs. resource s!m!lar!ty? WHERE you compete vs. WHAT you
compete w!th.
3. AMA dr!vers? Awareness, Mot!vat!on, Ab!l!ty — all three needed to act.
4. Attack factors? F!rst-mover !ncent!ves, organ!zat!onal s!ze, qual!ty.
5. Response factors? Type of act!on, reputat!on, market dependence.
6. Three market cycles? Slow (protect), Fast (re!nvent constantly), Standard (scale +
brand).
Real-World Case Anchors (use these !n essay answers)
Southwest A!rl!nes → !ntegrated cost leadersh!p/d!fferent!at!on, aggress!ve f!rst-
mover-l!ke moves (A!rTran gates), hedg!ng fuel costs = ab!l!ty/slack
GM vs. Toyota → decl!n!ng resource s!m!lar!ty, GM stuck !n “tunnel v!s!on,” fa!lure to
respond to hybr!d/compact trends
Coca-Cola vs. Peps!Co → standard-cycle market, !nnovat!on & leadersh!p stab!l!ty
determ!ne w!nner
D!sney / Pf!zer → slow-cycle, legal protect!on (patents/copyr!ghts) = susta!ned
advantage
Dell / HP / IBM (PCs) → fast-cycle, no susta!nable advantage, constant re!nvent!on
needed
Hyunda! → qual!ty turnaround (1999–2003) enabled more aggress!ve compet!t!ve
behav!or