Chapter 5: Competitive Rivalry & Competitive Dynamics

slow-cycle market

markets in which competitors lack the ability to imitate the focal firm's competitive advantages that commonly last for long periods, and where imitation would be costly. Thus, firms may be able to sustain a competitive advantage over longer periods in slow-cycle markets - building a unique and proprietary capability produces a competitive advantage and success in this market. Copyrights and patents are examples of these capabilities.

In general, a firm is likely to response to a competitor's action when either

- the action leads to better use of the competitor's capabilities to develop a stronger competitive advantage or an improvement in its market position - the action damages the firm's ability to use its core competencies to create or maintain an advantage - the firm's market position becomes harder to defend.

In addition to earning above-average returns until its competitors respond to its successful competitive action, the first mover can gain:

- the loyalty of customers who may become committed to the products of the firm that first made them available - market share that can be difficult for competitors to take when engaging in competitive rivalry

Actor's 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.

type of competitive action

Strategic actions receive strategic responses Strategic actions elicit fewer total competitive responses because strategic response, such as market-based moves, involve a significant commitment of resources and are difficult to implement and reverse. The time needed to implement and assess a strategic action delays competitor's responses. Tactical responses are taken to counter the effects of tactical actions A competitor likely will respond quickly to a tactical actions

first mover

a firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position - first movers emphasized R&D as a path to developing innovative products that customers will value - a first mover in a fast-cycle can experience many times the revenue and valuation of a second mover - tend to be aggressive and willing to experiment with innovation and take higher yet reasonable levels of risk, and their long-term success depends on retaining the ability to do so

organizational size

an organization's size affects the likelihood it will take competitive actions as well as the types and timing of those actions. - in general, smaller firms are more likely than large companies to launch competitive actions and tend to do so more quickly. Because of this tendency, smaller firms have the capacity to be nimble and flexible competitors. These firms rely on speed and surprise to defend their competitive advantages or to develop new ones while engaged in competitive rivalry, especially with large companies, to gain an advantageous market position. - large firms, however, are likely to initiate a larger total number of competitive actions and strategic actions during a given period.

drivers of competitive behavior

awareness, motivation, ability

market commonality

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 Firms competing against one another in several markets engage in multimarket competition Ex. Coca-cola and PepsCo compete across a number of product markets (soft drinks & bottle water) as well as geographic markets (throughout North America and in many other countries throughout the world)

motivation

concerns the firm's incentive to take action or to respond to a competitor's attach, relates to perceived gains and losses. Thus, a firm may be aware of competitors but may not be motivated to engage in rivalry with them if it perceives that its market position will neither improve nor suffer if it does not respond. - a firm is generally more likely to attack a rival with whom has low market commonality than the one with whom competes in multiple markets. The primary reason for this is the high stakes involved in trying to gain a more advantageous position over a rival with whom the firm shares many markets.

quality

exists when the firm's product meet or exceed customers' expectations. quality affects competitive rivalry. The firm evaluating a competitor whose product suffer from poor quality can predict declines in the competitor's sales revenue until the quality issues are resolved. In addition, the firm can predict that the competitor likely will not be aggressive in its competitive actions until it's able to correct the quality problems as a path to gaining credibility with customers. However, after correcting the problem, that competitor is likely to take aggressive competitive actions.

market dependence

extent to which a firm derives its revenues or profits from a particular market -in general, competitors with high market dependence are likely to respond strongly to attacks threatening their market position.

Late mover

firm that responds to a competitive action a significant amount of time after the first mover's action and the second mover's response - typically, a late response is better than no response at all, although any success achieved from the late competitive response tends to be considerably less than achieved by first and second movers.

second mover

firm that responds to the first mover's competitive action, typically through imitation. -studies customers' reaction to product innovations and also tries to find any mistakes the first mover made so that it can avoid them and the problems they created. - often, successful imitation of the first mover's innovations allow the second mover to avoid the mistakes and the major investments required of the pioneering first movers - have the time needed to develop processes and technologies that are more efficient than those the first mover used or that create additional value for consumers

multimarket competition

firms competing against each other in several product or geographic markets Firms with greater multimarket contact is less likely to initiate an attack but more likely to respond aggressively when attacked multimarket competition reduces competitive rivalry, but some firms will still compete where the potential rewards are high

Competitors

firms operating in the same market, offering similar products, and targeting similar customers

likelihood of attack factors

first mover benefits, organizational size, quality

awareness

is a prerequisite to any competitive action or response taken by a firm, which refers to the extent to which competitors recognize the degree of their mutual interdependence that results from market commonality and resource similarity - affects the extend to which the firm understands the consequences of its competitive actions and responses - tends to be greatest when firms have highly similar resources (in terms of types and amounts) to use while competing against each other in multiple markets.

Fast-cycle markets

markets in which competitors can imitate the focal firm's capabilities that contribute to its competitive advantages ad where that imitation is often rapid and inexpensive. Thus, competitive advantages are not sustainable in fast-cycle markets. firms competing in fast-cycle markets recognize the importance of speed. reverse engineering and the rate of technological diffusion facilitate the rapid imitation that takes place in fast-cycle markets. recognizing this reality, firms avoid "loyalty" to any of their products, preferring to cannibalize their own products before competitors learn how to do so through successful imitation.

standard-cycle markets

markets in which some competitors may be able to imitate the focal firm's competitive advantages and where that imitation is moderately costly. Competitive advantage are partially sustainable in standard-cycle markets. However, tis is the case only when the firm can upgrade the quality of its capabilities continuously as a foundation for being able to remain ahead of competitors.

competitive rivalry

ongoing set of competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position

Ability

related to each firm's resources and the flexibility they provide. Without available resources, the firm is not able to attack a competitor or respond to its actions. For example, smaller and newer firms tend to be more innovative but generally have fewer resources to attack larger and established competitors.

competitive behavior

set of competitive actions and responses a firm takes to build or defend its competitive advantages and to improve its market position

competitive action

strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position.

competitive response

strategic or tactical action the firm takes to counter the effects of a competitor's competitive action

slack

the buffer provided by actual or obtainable resources not in use currently and that exceed the minimum resources needed to produce a given level if organizational output - organizational slack makes it possible for firms to have the ability to be first movers

resource similarity

the extent to which the firm's tangible and intangible resources are comparable to a competitor's in terms of both type and amount Ex. FedEx and UPS. Similar types of truck and airplane fleets, similar levels of financial capital, and rely on equally talented reservoirs of human capital along with sophisticated information technological systems (resources). Thus, the rivalry between FedEx and UPS is intense.

Competitive dynamics

the total set of competitive actions and responses taken by all firms competing within a market

Likelihood of Response Factors

type of competitive action, actor's reputation, and market dependence