6. Competitive Rivalry and Competitive Dynamics

Question 1

Define competitors.

Answer 1

Firms in the same market with similar products and target groups.

Question 2

How much percentage of new firms fail?

Answer 2

80% to 90%

Question 3

Define competitive rivalry.

Answer 3

Ongoing competitive actions and responses for an advantageous market position.

Question 4

Define multimarket competition.

Answer 4

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.

Question 5

Define competitive dynamics.

Answer 5

Firm’s competitive behaviour.

Question 6

What does a model of competitive rivalry entail?

Answer 6

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.

Question 7

Define competitive analysis.

Answer 7

Firms the extent and nature of rivalry with competitors.

Question 8

Define market commonality.

Answer 8

Number of markets firms compete in and the degree of importance of each market for each firm.

Question 9

Explain awareness.

Answer 9

Wether attacking/defending firm is aware of market commonality and resource similarity.

Question 10

Explain motivation.

Answer 10

Firm’s incentive to take action based on perceived gains/losses from taking action.

Question 11

Explain ability.

Answer 11

Firm’s resources and flexibility when attacking or responding.

Question 12

A competitive response counters the effects of a ___________________.

Answer 12

competitive action

Question 13

What is a strategic action/response?

Answer 13

A market-based move of organisational resources.

Question 14

What is a tactical action/response?

Answer 14

A market-based move to fine-tune a strategic action or response.

It requires fewer resources and is easily implemented or reversed.

Question 15

List the three factors that effect the likelihood of attack.

Answer 15

1) First movers incentives.
2) Organisational size
3) Quality

Question 16

What does the first mover entail?

Answer 16

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.

Question 17

Define slack.

Answer 17

A buffer by existing resources that aren’t currently in use.

It is liquid resources that a firm can quickly use.

Question 18

What is a secondary mover?

Answer 18

A firm that responds to a first mover with imitation.

Less potential for high returns compared to first movers.

Question 19

What does a secondary mover do?

Answer 19

• studies customer reactions to innovations
• avoid mistakes that first movers made
• more time to create more value for customers

Question 20

What is a late mover?

Answer 20

A firm that responds after the first and secondary movers.

Better than no response. Average returns with reduced risks.

Question 21

How does organisational size affect attacks?

Answer 21

Small firms use speed and surprise to create/defend competitive actions.

Large firms have more slack so they initiate more competitive and strategic actions.

Question 22

List the three factors that affect likelihood of response.

Answer 22

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.

Question 23

What are three things to consider when predicting a firm’s likelihood of response? Elaborate.

Answer 23

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

Question 24

Define competitive dynamics.

Answer 24

Actions and responses ALL firms take to improve market position.

Question 25

What are the three cycles for competitive dynamics?

Answer 25

Slow cycle, fast-cycle, standard cycle

Question 26

What does a slow-cycle market entail?

Answer 26

Firm’s competitive advantages are not imitable for a long time or imitation is costly.

It is more sustainable.

Question 27

What type of capability creates a slow-cycle market?

Answer 27

A unique and proprietary capability.

Question 28

What are examples of unique and proprietary capabilities?

Answer 28

Ownership of information, copyrights, geography.

Question 29

Are strategic actions in slow cycle markets more risky or less risky than fast-cycle markets?

Answer 29

Less risky

Question 30

What does a fast-cycle market entail?

Answer 30

A firm’s competitive advantages are rapidly imitable and cheap.

It is less sustainable.

Question 31

What are the pressure levels like for managers in fast-cycle markets? And why?

Answer 31

High pressure because they have to make speedy decisions.

Question 32

What do firms in fast-cycle markets emphasise?

Answer 32

Innovative products and superior advantages.

Question 33

What is the price like in fast-cycle markets?

Answer 33

Prices fall quickly so firms must profit quickly from innovations.

Question 34

What does a standard-cycle market entail?

Answer 34

A firm’s competitive advantages are moderately shielded from imitability and imitability is moderately costly.

Question 35

How is sustainability in standard-cycle markets?

Answer 35

Competitive advantages are partially sustainable, but only if firms constantly upgrades its capabilities (dynamic competitive advantages).

Question 36

What do actions and responses in standard-cycle markets seek?

Answer 36

Large market shares.

Customer loyalty through brand names.

Careful operation for consistent positive customer experience.