COMPETITIVE RIVALRY AND
DYNAMICS
Building & Sustaining Competitive
Advantage
Firms operating in the same market, offering similar products and
targeting similar customers are Competitors.
Competitive Rivalry is the ongoing set of competitive actions and
competitive responses that occur among firms as they maneuver
for an advantageous market position.
Competitive Behavior is the set of competitive actions and
competitive responses the firm takes to build or defend its
competitive advantages and to improve its market position.
Multi Market Competition is among firms competing against each
other in several product or geographic markets.
Competitive Dynamics
Competitors indulge in Competitive rivalry
Why?
To gain an advantageous market position.
How?
Through competitive behavior – actions and responses.
What results?
Competitive Dynamics – competitive actions and responses taken
by all firms competing in a market.
A Model Of Competitive Rivalry
Drivers of Competitive Behavior
Competitive Analysis
1. Awareness
1. Market Commonality
2. Motivation
2. Resource similarity
3. Ability
Feedback Inter-firm Rivalry
A. Likelihood of attack
1. First mover incentives
Outcomes 2. Organizational size
1. Market Position 3. Quality
2. Financial Performance B. Likelihood of Response
1. Type of competitive action
2. Reputation
3. Market dependence
Competitor Analysis
Market Commonality – it is concerned with the number of
markets with which the firm and a competitor are jointly
involved and the degree of importance of the individual markets
to each.
Resource Similarity – it is the extent to which the firm’s tangible
and intangible resources are comparable to a competitor’s in
terms of both type and amount.
Awareness Of Competitive Actions And
Responses
• Awareness – It is the extent to which competitors recognize
the degree of their mutual interdependence that results from
market commonality and resource similarity.
• Motivation – It concerns with the firm’s incentive to take
action or to respond to a competitor’s attack related to
perceived gains and loss.
• Ability - Relates to each firm’s resources and the flexibility
they provide.
Competitive Rivalry
• Competitive Action is a strategic or tactical action the firm
takes to build or defend its competitive advantages or
improve its markets position.
• Strategic Action Or Response is a market based move that
involves a significant commitment of organizational resources
and is difficult to implement and reverse.
• A Tactical Action Or Response is a market based move that is
taken to fine tune a strategy, it involves few resources and is
relatively easy to implement and reverse.
Likelihood Of Attack
• First Mover Incentive – First mover firm takes the initial
competitive action in order to build or defend its competitive
advantages or improve market position.
Advantages:
1. Customer loyalty
2. Market share
3. Better chances of survival
• Second Mover – Firm that responds to the first mover’s
competitive actions, typically through imitation – more
cautious than the first mover and avoids both mistakes and
huge spending that first mover makes.
• Late Mover – Firm which responds to the competitive action
very late after the first mover’s action and the second
mover’s response.
Likelihood Of Attack Cont.
• Organizational Size affects the likelihood of the competitive
action firm will take as well as the types and timings of the
action.
• Small firms launch competitive action faster than larger firms
since they are nimble and flexible.
• Size should be studied in terms of total sales revenue or
employee strength.
• Large size firm is characterized by greater number of
competitive actions while smaller firm is characterized by
greater variety of competitive actions.
Likelihood Of Response
Type Of Competitive Actions
• Competitive responses to strategic actions differ from
responses to tactical actions.
• Strategic actions generate fewer responses because strategic
actions and responses require significant commitment of
resources are difficult to reverse.
• Strategic actions also generate fewer response because the
time needed to implement a strategic action and assess its
effectiveness can delay the rival’s response to the action.
• Response to a tactical actions is faster and easier.
Likelihood Of Response
Actor’s Reputation is the positive or negative attribute ascribed
by one rival to another based on past competitive behavior.
Dependence On Market denotes the extent to which a firm’s
revenues or profits are derived from a particular market – firms
with high market dependence respond strongly to attack on
their market position.
Competitive Dynamics
To understand competitive dynamics we need to study the
effect of varying rates of competitive speed in different markets.
• Slow-cycle Markets
• Fast-cycle Markets
• Standard-cycle Markets
Slow Cycle Markets
• These are markets where the firm’s competitive advantages
are shielded from imitation for long periods of time as
imitation is costly – thus competitive advantage is costly.
• Sources of advantage are difficult to understand and costly to
imitate. (resource or capability, copyrights and patents).
• Competitive dynamics in slow cycle markets concentrate on
competitor actions and responses that enable firms to
protect, maintain and extend their competitive advantage.
• Major strategic actions in these markets such as acquisitions
usually carry less risk than in faster cycle markets.
Fast Cycle Markets
• Markets in which the firm’s capabilities that contribute to
competitive advantage aren’t shielded from imitation and can
be easily copied at low cost.
• Reverse engineering and technology diffusion increase
imitation in fast cycle markets.
• These markets are innovation based markets (PC market).
• Players do not concentrate on protecting, maintaining and
extending competitive advantages but focus on rapidly and
continuously developing new competitive advantages that are
superior to those they replace.
Fast Cycle Markets
• These are markets in which the firm’s competitive advantages
are moderately shielded from imitation as imitation is
moderately costly.
• Competitive advantages are sustainable if firms continuously
upgrade quality of capabilities. Dynamic Capabilities are the
ability to achieve new and innovative forms of competitive
advantage.
• Actions and responses in these markets are designed to seek
large market shares, gain customers loyalty.