1. Corporate Strategy Rivalry and Multipoint Competition Session 9
Dr. Olivier Furrer

2. Example
In July 1969, Michelin announced plans to establish a plant in Canada which would give a foothold in the North American market, attacking market leader Goodyear. As a countermove, Goodyear entered the European market. Michelin continued to increase its market share in North America and attacked Goodyear in Brazil.
(Karnani and Wernerfelt, 1985)

3. Example: Microsoft’s Xbox
In the late 1990s, Microsoft recognized that Sony could emerge as an important rival. Although Sony functioned in a different industry (i.e., consumer electronics rather than software), Microsoft noted that the Sony PlayStation was, in essence, nothing more than a specialized computer and, even worse, one that did not use a Microsoft operating system. Microsoft thus worried that Sony might use the PlayStation II, which came equipped with Web browsing potential, as a “Trojan horse” that would gain control of consumers’ Web browsing and computing habits from their living rooms, ultimately taking those customers away from PCs with Microsoft operating systems. The desire to keep Sony’s ambitions in check was a significant part of the rationale for Microsoft’s diversification into the video game industry, with the launch of its Xbox.

4. Example: Disney and AOL–Time Warner
Multipoint competition between The Walt Disney Company and AOL–Time Warner in the early 1990s. Disney operates in the theme park, movie and television production, and television broadcasting industries; AOL–Time Warner operates in the theme park and movie and television production industries, while also operating a significant magazine business (publishing Time, People, Sports Illustrated, and others). Disney spends millions of dollars to advertise its theme parks in AOL–Time Warner magazines. Despite this substantial revenue, AOL–Time Warner initiated an aggressive advertising campaign, aimed at wooing customers away from Disney theme parks to its own. Disney retaliated by canceling all of its advertising in AOL–Time Warner magazines. AOL–Time Warner responded by canceling a corporate meeting that was to be held at Disney World. Disney in turn responded to AOL–Time Warner’s meeting cancellation by refusing to broadcast AOL–Time Warner theme park advertisements on its Los Angeles television station. 4

5. Definitions Competitive Dynamics Competitive Rivalry
Results from a series of competitive actions and competitive responses among firms competing within a particular industry
Competitive Rivalry
Exists when two or more firms jockey with one another in the pursuit of better market position

6. Definitions (cont’d) Multipoint Competition
A situation where firms compete against each other simultaneously in several markets

7. Focus of this Session
The process by which multimarket (or multibusiness) affects interfirm rivalry
The factors that moderate the impact of multimarket (multipoint) competition on interfirm rivalry
The implications of multimarket (multipoint) competition for corporate- and business-level strategy

8. Multipoint Competition
III II IV
Firm A
Firm B
Businesses

9. Factors Leading to More Complex Rivalry
Declining emphasis on single, domestic markets and increasing emphasis on global and multiple markets
Advances in communication technology make coordination easier across multiple markets
Advances in technology and innovation have increased competitiveness of small and medium sized firms
National barriers are falling due to the number and scope of trade agreements (WTO, NAFTA, EU)

10. The Rivalry Matrix Decision Variables Few Many
Warfare Models, Multipoint Competition
Predictable
Game Theory
Nature of the Environment
Scenarios, Simulation, and Systems Dynamics
Uncertain
Frameworks
Source.: Furrer, Olivier and Howard Thomas (2000), “The Rivalry Matrix: Understanding Rivalry and Competitive Dynamics,” European Management Journal, 18 (6), 619–637.

11. Model of Interfirm Rivalry: Likelihood of Attack and Response
Relative Size
Speed
Innovation
Quality
Ability for Action and Response
Outcomes
Drivers of Competitive Behavior
Awareness
Motivation
Capability
Competitor Analysis
Market
Commonality
Resource
Similarity
Interfirm Rivalry:
Attack & Response
Likelihood of Attack
First Mover Incentives
Likelihood of Response
Type of Competitive
Action
Dependence on the
Resource Availability
Actor’s Reputation
Competitive
Slow, Standard
or Fast Cycle
Market Types
Sustained
Advantage
Temporary
Evolutionary
Entrepreneurial
or Market-Power
Growth-Oriented
Actions
Feedback
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Session 7 © Furrer
Source: Chen, 1996

12. Multimarket Competition and Interfirm Rivalry: The Mutual Forbearance Hypothesis
Mutual forbearance is tacit collusion as a consequence of firms competing in many markets and the resulting increase in their interdependence.
Tacit collusion, as opposed to direct collusion, which is illegal, is a situation in which two firms understand each other’s motives and strategies and implicitly coordinate to avoid competing intensely.
Extent theory suggests that two different processes may be responsible for mutual forbearance as a result of higher degree of multimarket contact: familiarity (Baum and Korn, 1999) and deterrence (Bernstein and Whinston, 1990; Edwards, 1955; Porter, 1980).

13. Between focal firm and rivals
Multimarket contact
Between focal firm and rivals
Larger number of interactions with rivals
Ability to hurt
Larger revenue exposure to rivals’ actions
Opportunity to hurt
Rivals’ opportunity to retaliate in multiple markets
Better understanding of interdependence and overlapping market fortunes with rivals
Greater attention to rivals in market scanning and competitor information acquisition
Lower expected payoff from rivalry
Increased familiarity
Increased deterrence
MUTUAL FORBEARANCE
Lower intensity of competition
Source: Jayachandran et al., 1999

14. Model of Interfirm Rivalry: Likelihood of Attack and Response
Relative Size
Speed
Innovation
Quality
Ability for Action and Response
Outcomes
Drivers of Competitive Behavior
Awareness
Motivation
Capability
Competitor Analysis
Market
Commonality
Resource
Similarity
Interfirm Rivalry:
Attack & Response
Likelihood of Attack
First Mover Incentives
Likelihood of Response
Type of Competitive
Action
Dependence on the
Resource Availability
Actor’s Reputation
Competitive
Slow, Standard
or Fast Cycle
Market Types
Sustained
Advantage
Temporary
Evolutionary
Entrepreneurial
or Market-Power
Growth-Oriented
Actions
Feedback
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Session 7 © Furrer
Source: Chen, 1996

15. Model of Interfirm Rivalry: Likelihood of Attack and Response
Drivers of Competitive Behavior
Awareness
Do managers understand the key characteristics of competitors?
Does the firm have appropriate incentives to attack or respond?
Motivation
Does the firm have the necessary resources to attack or respond?
Capability

16. Model of Interfirm Rivalry: Likelihood of Attack and Response
Multipoint competition tends to reduce competitive interactions, but increases the likelihood of response where interaction occurs
Competitor Analysis
Do firms compete with each other in multiple markets?
Market Commonality
For example, airlines price flights similarly, but respond quickly when competitors introduce promotional prices

17. Model of Interfirm Rivalry: Likelihood of Attack and Response
Competitor Analysis
Do competitors possess similar types or amounts of resources?
Resource Similarity
Firms are less inclined to attack a firm that is likely to retaliate
Firms with similar resources are more likely to be aware of each other’s competitive moves
Firms with dissimilar resources are more likely to attack

18. Market Commonality and Resource Similarity
Source: Chen, 1996

19. Multimarket Contact and Intensity of Competition
Low contact
Medium contact
High contact
Degree of multimarket contact 19 19

20. Multimarket Contact and Intensity of Competition: A Contingency Model
Degree of multimarket contact
Seller concentration
Organizational structure of competing firms
Resource similarity
Spheres of influence
Opportunities for scope economies
CEO’s tenure
Source: Furrer, 2010; Jayachandran et al., 1999

21. Model of Interfirm Rivalry: Likelihood of Attack and Response
Attack & Response
Likelihood of Attack
Firm Mover advantage can be substantial
First Mover Incentives
Likelihood of Response
Type of Competitive Action
Actor’s Reputation
Dependence on the Market
Resource Availability

22. First Mover Firms that take an initial competitive action
Generally possess the resources and capabilities that enable them to be pioneers in new products, new markets or new technologies
Can earn above-average profits until competitors respond
Gain customer loyalty, helping to create a barrier to entry by competitors
Advantage depends upon difficulty of imitation
Source: Lieberman and Montgomery, 1988

23. Second Mover Firms that respond to a First Mover’s actions
Second Movers frequently imitate First Movers
Speed of response often dictates success
Should evaluate customers’ response before moving
“Fast” Second Movers can capture some of initial customers and develop some brand loyalty
Avoid some of the risks associated with First Move
Must possess necessary capabilities to imitate
Source: Lieberman and Montgomery, 1988

24. Model of Interfirm Rivalry: Likelihood of Attack and Response
Attack & Response
Likelihood of Attack
First Mover Incentives
Likelihood of Response
Type of Competitive Action
Whether a competitor is likely to respond depends on several key factors
Actor’s Reputation
Dependence on the Market
Resource Availability

25. Types of Competitive Actions
Significant commitments of specific & distinctive organizational resources
Strategic Actions
Difficult to implement
Difficult to reverse
Example
Major Acquisition
Tactical
Actions
Undertaken to “fine tune” strategy
Relatively easy to implement
Relatively easy to reverse
Example
Price cut

26. Source: Karnani and Wernerfelt, 1985

27. Source.: Smith and Wilson, 1995

28. Gauging the Likelihood of Response
Type of Competitive Action: Tactical or Strategic
Easier to respond to
Require fewer resources to mount a response
Actor’s Reputation
Market leaders are more likely to be copied
“Risk taking” firms are less likely to be copied
“Price Predators” are less likely to be copied

29. Gauging the Likelihood of Response
Market Dependence
Firms that are more dependent on a single industry are more likely to respond than are multimarket firms
Industry dependent firms will likely respond to either strategic or tactical actions
Competitor Resources
Smaller firms are more likely to respond to tactical actions
Limited resources may lead to alternatives such as Strategic Alliances

30. Model of Interfirm Rivalry: Likelihood of Attack and Response
Ability for Action and Response
Firm size can have opposing effects on competitive dynamics
Relative Size
Speed
Large firms may exert market power over rivals and erect barriers to entry against smaller competitors
Innovation
Quality
However, smaller competitors may be more nimble and innovative