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10/4/21

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Rivalry &
Competitive
dynamics

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But first, Competition vs cooperation

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What is competition?

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Cell phone manufacturers, by market share… in units shipped

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How to spot
competitive
industries?
1. Life cycle analysis

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How to spot
competitive
industries?

2. Compare Return on Invested
Capital (ROIC)

Source: McKinsey, A long-term look at ROIC

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How do firms compete?
How do we observe competition?

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Source: Schimmer, 2012. https://www.eventstudytools.com/competitive-dynamics

How do researchers observe competitive behavior?

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Definitions
Competitors: firms operating in the same market, offering similar products, and
targeting similar customers.

Competitive Rivalry: ongoing set of competitive actions and responses occurring
between competitors.

Influences an individual firm’s ability to gain and sustain competitive advantages.

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Definitions…
Competitive Behavior

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

Multimarket Competition

Firms competing against each other in several product or geographic markets.

Competitive Dynamics

The total set of actions and responses taken by all firms competing within a
market.

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Strategy & Rivalry
Success of a strategy is determined by:

– the firm’s initial competitive actions.
– how well it anticipates competitors’ responses to them.
– how well the firm anticipates and responds to its competitors’ initial actions.

Competitive rivalry:

– affects all types of strategies.
– has a dominant influence on the firm’s business-level strategy or strategies.

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Firms are mutually interdependent when:

– a firm’s competitive actions have noticeable effects on its competitors.
– a firm’s competitive actions elicit competitive responses from its competitors.
– competitors feel each other’s actions and responses.

Marketplace success is a function of both individual strategies and the
consequences of their use.

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Competitor analysis
Competitor analysis is used to help a firm understand its competitors.

The firm studies competitors’ future objectives, current strategies, assumptions,
and capabilities.

With the analysis, a firm is better able to predict competitors’ behaviors when
forming its competitive actions and responses.

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Market commonality
– number of markets with which a firm and a competitor are jointly involved.
– degree of importance of the individual markets to each competitor.

Firms competing against one another in several or many markets engage in
multimarket competition.

A firm with greater multimarket contact is less likely to initiate an attack, but more
likely to more respond aggressively when attacked.

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Resource similarity
– how comparable the firm’s tangible and intangible resources are to a

competitor’s in terms of both types and amounts.

Firms with similar types and amounts of resources are likely to have similar
strengths and weaknesses and use similar strategies.

Assessing resource similarity is difficult if critical resources are intangible, rather
than tangible.

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Example: systematic analysis of
market commonality

Product market
?

A B C D Sum

Focal company X X 2

Competitor A X X 2

Competitor B X X X 3

!!!
Same process may be used for Resource Similarity, on a separate
spreadsheet

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Example: systematic analysis of
resource similarity

Resource or
capability

category?

A B C D Sum

Focal company X X 2

Competitor A X X 2

Competitor B X X X 3

!!!

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Competitor
map

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Drivers of competitive behavior

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Drivers of competitive behavior

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Drivers of competitive behavior

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Drivers of competitive behavior

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Drivers of competitive behavior

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Rivalry
Competitive Action

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

Competitive Response

A strategic or tactical action the firm takes to counter the effects of a competitor’s
competitive action.

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Rivalry…
Strategic Action (or Response)

Market move designed to implement strategy and represents significant
commitments and distinctive resources. Difficult to implement and reverse

Ex: New product introduction, Acquisition, International expansion

Tactical Action (or Response)

Designed to fine-tune a strategy. Involves fewer and more general resources, are
easy to implement and reverse. Easier for competitors to respond to.

Ex: Price increases/decreases, some forms of advertising

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These dimensions are
observable in the marketplace
and allow you to identify
competitive behavior

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Common competitive tactics
– Pretend you don’t exist
– Copy your offering
– Trash, sue, undercut (hire talent away)
– Go toe to toe (improving customer experience)
– Leapfrog your offering (product/service is of much better quality)

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Why imitation can
be a viable
competitive tactic?

? Not all firms intend to lead their
industry, just be profitable

? Following the leader in a profitable
industry carries far less development
costs and risks

? Good execution of someone else’s
idea could be more valuable than
the idea itself

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Isomorphism. Or do all cars look the same?

Source: https://m edium .com /swlh/the-zom bie-m obile-b03932ac971d

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In conclusion:

? Spot competitive industries based on life-cycle, profitability (ROIC), and
industry structure

? Analyze rivalry based on frequency, strength, velocity, and types of
competitive actions and responses

? Strategic competitor analysis based on market commonality and resource
similarity

? Isomorphism vs sustained advantage as legitimate competitive strategies

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