6. Competitive Rivalry and Competitive Dynamics Flashcards
Define competitors.
Firms in the same market with similar products and target groups.
How much percentage of new firms fail?
80% to 90%
Define competitive rivalry.
Ongoing competitive actions and responses for an advantageous market position.
Define multimarket competition.
Firms competing with each other in numerous product or geographical markets.
It reduces competitive rivalry. Multimarket firms less likely to attack more will respond aggressively.
Define competitive dynamics.
Firm’s competitive behaviour.
What does a model of competitive rivalry entail?
1) Competitive analysis: market commonality and resource similarities.
2) Drivers of competitive behaviour: awareness, motivation and ability.
3) Interfirm rivalry: likelihood of attack and response
4) Outcomes: market position and financial performance.
Define competitive analysis.
Firms the extent and nature of rivalry with competitors.
Define market commonality.
Number of markets firms compete in and the degree of importance of each market for each firm.
Explain awareness.
Wether attacking/defending firm is aware of market commonality and resource similarity.
Explain motivation.
Firm’s incentive to take action based on perceived gains/losses from taking action.
Explain ability.
Firm’s resources and flexibility when attacking or responding.
A competitive response counters the effects of a ___________________.
competitive action
What is a strategic action/response?
A market-based move of organisational resources.
What is a tactical action/response?
A market-based move to fine-tune a strategic action or response.
It requires fewer resources and is easily implemented or reversed.
List the three factors that effect the likelihood of attack.
1) First movers incentives.
2) Organisational size
3) Quality
What does the first mover entail?
A firm takes the initial action to build or defend against competitive advantages and improve market position.
Higher risk; hard to predict returns. Must have many resources to invest in R&D. Organisational slack is needed.
Define slack.
A buffer by existing resources that aren’t currently in use.
It is liquid resources that a firm can quickly use.
What is a secondary mover?
A firm that responds to a first mover with imitation.
Less potential for high returns compared to first movers.
What does a secondary mover do?
- studies customer reactions to innovations
- avoid mistakes that first movers made
- more time to create more value for customers
What is a late mover?
A firm that responds after the first and secondary movers.
Better than no response. Average returns with reduced risks.
How does organisational size affect attacks?
Small firms use speed and surprise to create/defend competitive actions.
Large firms have more slack so they initiate more competitive and strategic actions.
List the three factors that affect likelihood of response.
1) A response will allow better competitive advantage and market position.
2) The action causes damage to a firm’s capabilities/advantage.
3) The firm’s market position is worse.
What are three things to consider when predicting a firm’s likelihood of response? Elaborate.
1) Type of competitive action:
- strategic actions have less competitive response because they require more resources and are harder to reverse
- strategic actions receive strategic responses; tactical actions receive tactical responses
2) Actor’s reputation:
- studying the actor’s (firm) past response behaviour
- positive reputation = above-average returns –> more competitive advantages
3) Market dependence:
- firms with high market dependence respond more aggressively
Define competitive dynamics.
Actions and responses ALL firms take to improve market position.
What are the three cycles for competitive dynamics?
Slow cycle, fast-cycle, standard cycle
What does a slow-cycle market entail?
Firm’s competitive advantages are not imitable for a long time or imitation is costly.
It is more sustainable.
What type of capability creates a slow-cycle market?
A unique and proprietary capability.
What are examples of unique and proprietary capabilities?
Ownership of information, copyrights, geography.
Are strategic actions in slow cycle markets more risky or less risky than fast-cycle markets?
Less risky
What does a fast-cycle market entail?
A firm’s competitive advantages are rapidly imitable and cheap.
It is less sustainable.
What are the pressure levels like for managers in fast-cycle markets? And why?
High pressure because they have to make speedy decisions.
What do firms in fast-cycle markets emphasise?
Innovative products and superior advantages.
What is the price like in fast-cycle markets?
Prices fall quickly so firms must profit quickly from innovations.
What does a standard-cycle market entail?
A firm’s competitive advantages are moderately shielded from imitability and imitability is moderately costly.
How is sustainability in standard-cycle markets?
Competitive advantages are partially sustainable, but only if firms constantly upgrades its capabilities (dynamic competitive advantages).
What do actions and responses in standard-cycle markets seek?
Large market shares.
Customer loyalty through brand names.
Careful operation for consistent positive customer experience.
