FREE online courses on Competitive Strategies - A Model of Competitive Rivalry - A Model of Competitive Rivalry

 

Competitive rivalry exists when companies jockey with one another in the pursuit of an advantageous market position. This means that, when one or more companies competing in an industry feels pressure to act or perceives an opportunity to improve their competitive position, competitive rivalry occurs as various companies initiate a series of actions and responses.

 

Competitive rivalry exists because of competitive asymmetry, which describes the fact that companies differ from one another in terms of their resources, capabilities, and core competencies, and the opportunities and threats in their competitive environments and industries.

 

It also is important that companies recognise that competition results in mutual interdependence among companies in the industry as each company tries to establish a sustainable competitive advantage. As companies strive to achieve strategic competitiveness and earn above-average returns, they must recognise that strategies are not implemented in isolation from competitors' actions and responses. The strategic management process represents companies taking a series of actions, fending off counter-actions or responses and developing responses of their own.

 

This is important because the pattern of competitive rivalry and competitive dynamics in the market(s) in which companies compete affects strategic competitiveness and returns.  Figure below provides a model of competitive rivalry.

 

 

Figure: A Summary Model of Competitive Rivalry

 

We can make a number of observations from the model in Figure above.

 

Competitive rivalry or competitive dynamics begin with an assessment of competitors' awareness and motivation to attack and/or respond to competitive moves.

 

Market commonality and resource similarity are affected by a company's awareness, and motivation affects the likelihood of attack or response.

 

The likelihood of attack and response result in competitive outcomes, with outcomes moderated by a company's ability to take strategic actions or responses.

 

Feedback from competitive outcomes will affect future competitive dynamics by affecting the nature of a company's awareness, motivation, and ability for action/response.

 

If companies overlap in a number of markets, multipoint competition--a situation where companies compete against each other simultaneously in a number of geographic or product markets--generally results. Interestingly, a high level of commonality reduces the likelihood of competitive interaction.  Since the major airlines are in so many common markets, there generally is competitive peace.  However, when one company makes a competitive move, the others are compelled to respond rapidly.

 

The intensity of competitive rivalry in an industry often is based on the potential for response. As a result, attackers generally are not motivated to target a rival that is likely to retaliate. In other words, in most cases, dissimilar resources may increase the likelihood of an attack while companies with similar resources (overlap between their resource portfolios) will be less likely to attack because resource similarity increases the likelihood of retaliation.