1. Chapter 5 Competitive Rivalry and Competitive Dynamics
Hitt, Ireland, and Hoskisson
In chapter 5, we take a look at competitive rivalry and dynamics.

2. Competitors and Competition
Firms that operate in the same market, offer similar products or services, and target similar customers are called competitors. They engage in competitive rivalry by maneuvering for market position against competitors, initiating their own competitive actions and responding to actions taken by competitors. Competitive behavior is the set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position. Through competitive behavior, the firm tries to successfully position itself relative to the five forces of competition and to defend current competitive advantages while building advantages for the future. Competitors increasingly compete in more than one market. Firms competing against each other in several product or geographic markets are engaged in multimarket competition. All competitive behavior—that is, the total set of actions and responses taken by all firms competing within a market—is called competitive dynamics. The relationships among these key concepts are shown above.
The success of a strategy is determined by the firm’s initial competitive actions including how well it anticipates competitors’ responses to them and how well the firm anticipates and responds to its competitors’ initial actions. Competitive rivalry affects all types of strategies and has the strongest influence on the firm’s business-level strategy or strategies.
Copyright © 2008 Cengage

3. Strategic and tactical actions, responses
A strategic action or response
Requires a significant commitment of organizational resources
Is difficult to successfully implement, and
Is difficult to reverse.
A tactical action or response
Requires fewer organizational resources
Is easier to implement and reverse
Firms use both strategy and tactics to form their competitive actions and responses while engaging in competitive rivalry. A competitive action is a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position. A competitive response is a strategic or tactical action the firm takes to counter the effects of a competitor’s competitive action. A strategic action or a strategic response is a market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse. A tactical action or a tactical response is a market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse.
Copyright © 2008 Cengage

4. Competitive rivalry
A competitve analysis is the first step the firm takes to be able to predict the extent and nature of its rivalry with each competitor. To explain competitive rivalry, we describe (1) factors that determine the degree to which firms are competitors (market commonality and resource similarity), (2) the drivers of competitive behavior for individual firms (awareness, motivation, and ability) and (3) factors affecting the likelihood that a competitor will act or attack (first-mover incentives, organizational size, and quality) and respond (type of competitive action, reputation, and market dependence). Building and sustaining competitive advantages are at the core of competitive rivalry, in that advantages are the key to creating value for shareholders.
Market commonality and resource similarity shape the firm’s awareness (the degree to which it and its competitors understand their mutual interdependence), motivation (the firm’s incentive to attack or respond), and ability (the quality of the resources available to the firm to attack and respond). Having knowledge of a competitor in terms of these characteristics increases the quality of the firm’s predictions about that competitor’s actions and responses.
Copyright © 2008 Cengage

5. Competitive rivalry
When we talk about rivalry between firms, we need to consider the likelihood of attack and the likehood of response. In addition to the factors already discussed, there are other factors that affect the likelihood a competitor will use strategic actions and tactical actions to attack its competitors. The first is first mover incentives. A first mover is a firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position. Smaller firms are perceived as nimble and flexible competitors who rely on speed and surprise to defend their competitive advantages or develop new ones
The second factor of likelihood of attack is organizational size. Small firms’ flexibility and nimbleness allow them to develop variety in their competitive actions; large firms tend to limit the types of competitive actions used. Large firms, however, are likely to initiate more competitive actions along with more strategic actions during a given period.
The third factor is quality. Quality has many definitions, including well-established ones relating it to the production of goods or services with zero defects and seeing it as a never-ending cycle of continuous improvement. From a strategic perspective, we consider quality to be an outcome of how the firm completes primary and support activities. Thus, quality exists when the firm’s goods or services meet or exceed customers’ expectations. Some evidence suggests that quality may be the most critical component in satisfying the firm’s customers.
A firm is likely to respond to a competitor’s action when (1) the action leads to better use of the competitor’s capabilities to gain or produce stronger competitive advantages or an improvement in its market position, (2) the action damages the firm’s ability to use its capabilities to create or maintain an advantage, or (3) the firm’s market position becomes less defensible. The type of competitive action is important: strategic actions receive strategic responses and tactical actions receive tactical responses. A second factor is reputation which is defined as “the positive or negative attribute ascribed by one rival to another based on past competitive behavior.” Competitors take this into consideration when determining the likelihood of response. Third is market dependence, which has to do with the extent to which a firm’s revenues or profits are derived from a particular market. In general, firms can predict that competitors with high market dependence are likely to respond strongly to attacks threatening their market position.
Copyright © 2008 Cengage

6. Competitive dynamics Slow-cycle markets Fast-cycle markets
Those in which the firm’s competitive advantages are shielded from imitation commonly for long periods of time and where imitation is costly.
Fast-cycle markets
Markets in which the firm’s capabilities that contribute to competitive advantages aren’t shielded from imitation and where imitation is often rapid and inexpensive. Competitive advantages aren’t sustainable in fast-cycle markets.
Standard-cycle markets
Markets in which the firm’s competitive advantages are moderately shielded from imitation and where imitation is moderately costly.
Whereas competitive rivalry concerns the ongoing actions and responses between a firm and its competitors for an advantageous market position, competitive dynamics concern the ongoing actions and responses taking place among all firms competing within a market for advantageous positions.
To explain competitive dynamics, we discuss the effects of varying rates of competitive speed in different markets (called slow-cycle, fast-cycle, and standard-cycle markets) on the behavior (actions and responses) of all competitors within a given market. Competitive behaviors, as well as the reasons or logic for taking them, are similar within each market type, but differ across market types. Thus, competitive dynamics differ in slow-cycle, fast-cycle, and standard-cycle markets. The sustainability of the firm’s competitive advantages also differs across the three market types.
Copyright © 2008 Cengage