A Model of Competitive Rivalry

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.

Model of Competitive Rivalry

Drivers of
Competitive Outcomes
Behavior Interfirm Rivalry Ability for Competitive
Awareness Attack & Response Action and Market Types
Motivation Response Slow, Standard
Capability Likelihood of Attack Relative Size or Fast Cycle
First Mover Incentives Speed Competitive
Likelihood of Response Innovation Outcomes
Type of Competitive Quality Sustained
Competitive
Competitor Action Advantage
Actor’s Reputation
Analysis Temporary
Dependence on the Advantage
Market Market
Commonality Resource Availability Evolutionary
Resource Outcomes
Similarity Entrepreneurial
Growth-Oriented
Feedback or Market-Power
Actions
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.